Tel Aviv Real Estate - August 16, 2005

It is fast becoming clear that the purchase of Israeli apartments by foreign residents is not a passing phenomenon, but one that will stay for some time to come. The phenomenon is set to grow over the next few years as hundreds of Jews from Australia, the United States and Europe show a fundamental change in attitude of the world Jewry toward Israel. The Israeli real estate market is slowly adapting to the entry of foreign residents, who do not live for long periods but short spans of time. More than 2,000 apartments were purchased by foreign residents in 2004. Market sources project that an even larger figure is in the cards for 2005. Buyers are looking for apartments in certain neighborhoods in Jerusalem and in a few locations in Ashdod, Eilat, Netanya and Tel Aviv. They sometimes cause price rises of dozens of percentage points, in a real estate market that has been shrinking steadily for the past few years.

Foreign investments in the Israeli real estate market showed new all-time records from January to July 2005. Records showed that foreign investments are continuing especially in luxury areas. Foreign investment in land totaled $650 million in January-July 2005. This was 81% of total investment in land in 2004, and reflected an annualized foreign investment of $1.1 billion. Foreign investment in land has totaled $1.92 billion in the past two and a half years, amounting to 32.7% of direct foreign investment and 9.8% of total foreign investment in Israel during this period. Total investment in land and housing since 1998 is $2.87 billion.

The disengagement plan has caused a demand for 1,700 new homes as evacuated families from the Gaza Strip and northern Samaria to seek new homes. While the demand for lots and homes in south had been very low until now, this government plan that has made this concept a reality. While the new demand is not expected to boost real estate prices in the south in the short term, the long term will paint a different picture with the arrival of hundreds of families with $2-4 million each that will probably benefit their communities. The short-term picture will stay unaffected because inventory of lots for construction and empty apartments greatly exceeds the expected demand. Communities in the south, desperate for new residents, will be the first to reap the benefits of the disengagement plan.