Har Homa in southern Jerusalem
Har Homa in southern JerusalemIsrael news photo: Flash 90

Israeli homes continue to prove be one of the best investments around as the growth in home prices in the Jewish state is the third highest in the world.

The rise in prices in the fourth quarter of 2010 was 16.2 percent, according to the Global Property Guide. Riga and Singapore were the only locations with a higher increase.

Bank of Israel Governor Stanley Fischer has tried to cool the hot housing market and prevent a potential bubble. Last quarter's rise was the sixth straight three-month period in which home prices have risen more than 10 percent.

The soaring real estate market puts Israel far ahead of many economies where the housing market still is tumbling following the global economic crisis two years ago, which Israel largely escaped.

Despite fears of a bubble, the price of homes is likely to continue to rise, according to the Bank of Israel. “There is a significant probability that housing prices will continue their rapid rate of increase in the coming year,” central bank officials recently stated during a discussion on interest rate levels.

Although there has been several declines, real estate overall has been one of the best investments in Israel since the re-establishment of the Jewish state.

Prices in some Tel Aviv neighborhoods have tripled over the past six years, and the flight to the outlying areas has jacked up prices there as well. In Efrat and other communities in Gush Etzion south of Jerusalem, the price of homes is nearing that of residential units in some parts of the capital, where the average price of a home is nearly $400,000.

Major factors in the rise in prices is the lack of land, most of which is owned by the government, immigration, and foreign buyers who view apartments and houses in Israel as a good investment as well as a future retirement home