Subprime-stricken foreign buyers cooling on J'lem

Until recently, apartment buyers from overseas would say "the market in the holy city has no price." Nowadays real estate agents in the city say that even if this remains the case, there is a limit to what they actually are willing to pay.

Banks, assessors, brokers and even sellers are now admitting that the Jerusalem real estate party is on its last legs.

"We had an Arab house with construction rights and a 500-year-old carob tree on the property, the oldest in Israel, certified by the Agriculture Ministry," says Dalia Bikovitski, the RE/MAX franchise owner in the German Colony. "The house was on the market for a month, and sold for $560,000. In the past, there would be many contenders for a bargain like that, and the property would have sold within a week."
Advertisement

This is a relatively quick sale nowadays. Two years ago, far higher-priced homes were sold within days. Properties in central Jerusalem neighborhoods - Talbieh, the German Colony and Rehavia - have nearly doubled in price in the last four years. In 2003, pre-state single-family Arab style homes in Talbieh and the German Colony went for $6,500 to $7,500 per square meter, and in 2007 they were going for $12,000 to $14,000 per square meter.

Normal apartments are currently selling for $7,000 to $8,000 per square meter, which is also an increase of tens of percent, partly due to the falling value of the dollar

Foreign residents waking up

Property deals in the second half of 2007 were closing at levels similar to the first half of 2007, as real estate price increases began slowing. The flow of overseas buyers has slowed greatly in recent months.

The primary explanation for this slowdown is the economic crisis in the U.S. and the collapse of the dollar. Nevertheless, there is a feeling among prospective apartment buyers that Jerusalem property owners are asking too much for exclusive homes.

"There certainly is a slowdown," one agent says. "There is a feeling that while foreign residents behaved naively in the past and bought just about anything for any price, they are now wiser."

Nevertheless, the slowdown has not been reflected in falling prices yet. Daniel Tal, is offering his home for sale for $2.5 million.

He sounds sure when he says that this is the price, and that he is not worried. The 700-square-meter home near Nahlaot has been on the market for four months, but he has not considered lowering his asking price.

Sellers and buyers of luxury real estate in Jerusalem have a big problem with the tribulations of the dollar exchange rate. There is a great deal of confusion, and both parties are trying to use it to their advantage.

"I have a property whose owners offered it for sale about 18 months ago based on 4.5 shekels to the dollar, and they are continuing to offer it at the same exchange rate," reports one realtor. "It's complete madness. And I have another seller who has raised the price of the property four times in the past month, from $120,000 to $150,000 now. It makes no sense. Sellers are going to have to get used to the new situation quickly, and lower prices."

But buyers are in no hurry to acclimatize to the shaky status of the dollar, either. The exclusive Jerusalem market has traditionally operated in dollars, mainly because a substantial proportion of its clientele have been ultra-Orthodox Americans. These refuse to accept the fact that sellers use shekels, and periodically update the dollar price for their properties.

"When I say that the price of an apartment is NIS 1.5 million, based on an exchange rate of NIS 4 to the dollar, this equals $375,000, but at the current exchange rate of NIS 3.5 to the dollar, the price is $430,000 - an additional $55,000. Foreign residents don't understand it, they think it is dishonest, that we are pulling the wool over their eyes," says one agent.

The result of this conflict is that the market is unsettled, buyers are furious at sellers over the price fluctuations, and deals fall through.

"Negotiations between a buyer and a seller are about the dollar," one bank manager confirms. "At the beginning of the year the dollar was trading at NIS 3.85 shekels, and it is now down to NIS 3.47, so the cost to the buyer is substantially higher.

"The dollar has dropped 18% against the shekel over the past year, a large amount for any buyer. This causes an overall slowdown," he says.