Israel Matzav

The hottest real estate market in the world?

The hottest housing market in the world these days is right here in Israel. But a lot of people aren't too happy about it.

According to Global Property Guide, a trade magazine that monitors the housing market, Israeli housing prices in the second quarter of 2010 rose sixth-fastest in a ranking of 36 countries. Four of the top five, including Singapore and Latvia, were rebounding from sharp price drops. So looking at the past two years ended in June — the last period for which there is data — Israeli real estate clocks in at No. 1.

For Israel, where high-tech and science are booming businesses, the property price spike is the latest claim to fame. But it's one officials aren't boasting about, given ample evidence of how an imploding bubble can shatter decades of economic growth.

Examples of the danger of an overheated market litter the globe. From Dubai to Detroit, housing prices plummeted amid the global meltdown beginning in 2008. Defaults on mortgages surged in the United States while in Dubai, the one-time Arab boomtown, property prices tumbled by about 50 percent in 2009.

Amid that downturn, Israel stood firm, shielded in part by the fact that its property price gains were late in coming. While many countries were on a property high during the middle part of the decade, its market was largely stagnant.

Its banks offered nothing close to the US-style subprime mortgages, and Israel's financial market is not intertwined with the mortgage market — the main reason for the US housing meltdown. Down payment requirements remained high, often equal to more than 40 percent of a house's value.

Adding to the mix was a conservative local banking sector whose broader dislocation from the global market helped to shield Israel from the worst of the global meltdown.

What fueled the boom, however, were rock bottom interest rates and a relatively low supply of housing. The result was a nearly 30 percent jump in property prices since September 2008.

In the last twenty years, there have been two Jewish neighborhoods built with relatively affordable apartments: Ramat Shlomo and Har Homa. Har Homa is very much on the city's periphery - Ramat Shlomo is a bit closer in.

In the center of town, every time property opens up, it gets sold to developers, who build luxury apartments that Israelis cannot afford. They are bought up by foreigners.

Maybe it's a free market, but those foreigners don't live in those apartments, and in most cases they leave those apartments sitting empty most of the year. The result is that people who would like to live in Jerusalem year-round cannot afford to do so - there is no affordable housing. They are forced to flee the city, to Judea and Samaria or to the Jerusalem - Tel Aviv corridor. That's why the Jewish majority in Jerusalem is eroding.

Ask any shopkeeper of school administrator in a neighborhood like Rechavia or Shaarei Chessed or Telbiah (all neighborhoods near the center of town) what they think of absentee owners. They hate them. The schools don't have enough kids to justify being open and the storekeepers are going broke. Really.

If you're going to buy an apartment here and not live in it, at least rent it out.

/Off my soapbox.

posted by Carl in Jerusalem @ 5:30 AM