High Cost Tel Aviv Properties: A Continuing Trend

NOT Tel Aviv, city of Mt. Maunganui, Not the expensive real estate of Tel Aviv (from http://ashkenas.com/)

Tel Aviv is one of the most expensive city in the world to buy a property. This has been the story until 2008, when many of the world's economies collapsed and comparison costs stopped coming out. The economy here also slowed down, not exactly a collapse. What makes Israeli properties so valuable? One explanation is supply and demand. Tel Aviv central zone was built quickly in the 1920s and 1930s. Small apartment buildings, four stories high with two bedroom apartments was the standard. Then in the 1950s, the rest of Tel Aviv, to it's borders was filled in. Flash forward to the 1980s and 90s and demand (and available money) is pushing apartment prices up. This drives steady new luxury construction. Since Tel Aviv does not have readily available open land for construction, whatever land is available is expensive. An alternative to open land, replacing old buildings with new one. This technique is called “clearing / building” (pinui / binui): clearing existing property, building new one.

It is unclear what will happen to the Tel Aviv property landscape. It could stay as it is, with relatively low density four to six story buildings. It could be replaced by high-rise twenty to thirty story luxury apartments. It could be a mix of the two, which is what some planners are hoping for. As far as cost of apartments, it seems like stability and steady rise. Property prices are sensitive to the general economy. While the economy internationally and locally is experiencing a slowdown, prices are not going up quickly. Yet, prices are not going down and the much anticipated bubble burst has not occurred. It seems like the market is willing to stay “stopped” for a while, prices frozen and very little buying and selling.  

In terms of the individual investor, the apartment market is still attractive. If one can buy an apartment or even take a small mortgage (as high as 30%), property values will hold and there is a strong demand for rental apartments. The combination of a steadily increasing prices, shortage of availability and high demand, makes for an expensive market. Yet, the ownership is not highly leveraged. Most owners are not stuck with large mortgages. These who have mortgages are usually living in their own apartment and value staying there. In addition, if they have to sell due to economic difficulty, an apartment sells quickly for a good profit. This makes the possibility of a crash less likely. To outside investors, this could be an attractive opportunity to put money into the Israeli real estate market.