Daily Israel Report

The Effect on the Real Estate Market of a Divided Jerusalem

I have been asked by a number of citizens, what will happen to real estate prices if the government divides the city?
By Baruch Finkelstein
First Publish: 11/18/2007, 8:46 PM


Sellers who will sell cheap now out of fear that the market will decline, or buyers who will refrain from buying, will probably regret their decisions.

When taking into account the causes that influence the real estate market, one usually considers factors such as current trends in real estate purchases, the economy, stock market, mortgage rates, employment resources, the area’s crime rate, transportation services, and a slew of other causes - including the threat of war. National suicide has yet to be considered. I have been asked by a number of citizens, what will happen to real estate prices if the government divides the city? 


 If the north-eastern neighborhoods of Jerusalem fall into the hands of the Arabs, real estate prices will not be our main concern, we will have much bigger problems to worry about. However, the real estate market will reflect the national mood in the aftermath of a divided capital.

 

In the past, political events in Israel have affected the real estate market. In the early to mid-1990s, for instance, the citizens of Israel were intoxicated with the hope that Yitzchak Rabin would bring genuine and lasting peace. Real Estate prices skyrocketed, and developers profited almost wherever they put down their money. Fifty thousand units annually were built in those days, as opposed to about 25,000 annually in previous years. But the political climate back then was not the only dynamic affecting the market. Mass immigration from the Soviet Union, and the sudden growth of the high-tech industry also played a role. In other words, the combination of national optimism, a housing shortage and a new upper middle class caused the real estate market to climb. It is therefore doubtful that the peace initiative alone ushered in the surge in real estate prices. In the late nineties, everything came to a halt as all three factors disintegrated. Immigration from the former Soviet Union slowed down, the high-tech bubble burst and the disastrous results of the Oslo agreement shattered the peace frenzy.

 

In 2000, when the Arab uprising struck, Jerusalem was the city that bore the brunt of Islamic terrorism and the prices of properties indicated the pessimistic and fearful attitude of the city’s residents.

 

Based on this analysis, we would think that if the proposal to divide Jerusalem enjoys wide spread public support, and if there would be a real and lasting peace, than prices in the nation’s capital will escalate. If however, the opposite is true, then prices will either decline or stand still. However, life in Israel is unpredictable. Trends cannot always be explained rationally. One would have thought that the 2006 Lebanon war would have caused a decline in sales of homes up north. In actuality, the war triggered no change on the real estate market at all. Although Haifa is experiencing a real estate slump, this is due more to internal problems of that city rather than fear of scud missiles. In Kiryat Shimona the real estate market is strong as the city is enjoying an increase in sales.

 

We also must bear in mind that Jerusalem will not be the only city affected. The division of Jerusalem is slated to take place within the framework of a disengagement of Judea and Samaria – the heartland of Israel. It is likely that this will  lead to the same disastrous result as the Disengagement from Gaza, with every city from Hadera to Beer Sheva being in the range of kassam rockets. What will happen to real estate prices in Kfar Saba, Ra'anana, Kochav Yair and Netanya if those cities are bombed as frequently as Sderot?

 

The neighborhoods that will see a certain and sudden drop in real estate value will be those Arab neighborhoods that will be annexed to Hamastan. Today in Shuafat, a standard four room apartment runs about $220,000, as Shuafat is one of the more expensive Arab neighborhoods. Once it is cut off from Israel, it will be under the control of terrorists and the violent atmosphere of Gaza will likely spread like poison gas to Judea, Samaria and East Jerusalem. Prices of homes will plummet. What East Jerusalem resident is going to want to buy a house under Hamastanian rule instead of Israeli rule?

 

The proposal to divide Jerusalem will or will not come to pass. If the plan doesn’t go through, the status quo will remain, and prices will be subject to ordinary market trends. If Jerusalem is divided, then the market will be shaped by the attitudes and events that will shape that period. We should therefore continue to conduct business as if the plan was not even a consideration. Sellers who will sell cheap now out of fear that the market will decline, or buyers who will refrain from buying, will probably regret their decisions. People who are afraid to buy or sell anyway, will use this as an excuse to support their procrastination. As a resident of Binyamin, I am proud that the Jewish community here has never ceased to build and invest. Had we stopped development every time the settlement movement was threatened we would all still be living in trailers. I expect that same faith will be expressed in Jerusalem. From Joshua’s time throughout modern times, Israel was built with faith, and will continue to be built with faith.

 

Baruch Finkelstein is an owner/broker of Remax Center in Jerusalem.

The office is in the shopping center of Ramot and Baruch has agents that service all of Jerusalem.

Cell: 0545-251-219
baruch.finkelstein@remax.co.il