Something strange is happening in Jerusalem. Organized groups have been buying dozens of small apartments in new projects in recent months for an overall hundreds of millions of shekels. The most outstanding such example is Israel Canada's (TASE: ISCN) Midtown Jerusalem project in the old Sha'are Zedek hospital complex on Jaffa Road.
The data gathered by the Israel Tax Authority shows that since the start of the war, 75 two-room apartments have been sold in Jerusalem compared with just 17 in Tel Aviv, 31 in Haifa, ten in Beersheva, nine in Petah Tikva, four in Rishon Lezion and two in Netanya.
The number of such deals for small apartments was also high before the war. Between August 14 and October 7, according to the Israel Tax Authority, 59 two-room apartments were sold in Jerusalem.
Investors, Haredim, or foreign residents?
In Israel Canada's Midtown Jerusalem project, according to the Israel Tax Authority, 150 apartments have already been sold including 53 two-room apartments averaging 49 square meters in size at an average price of NIS 3.297 million. It should be taken into account that the Israel Tax Authority site can often take months to post details about new deals, so these numbers are likely to be revised upwards.
A second more modest Jerusalem project in terms of numbers is being built by A. R. Best Properties at 12 Sarei Israel Street in Romema. Here 14 two-room apartments have been sold in the six-floor building with 33 housing units.
The fact that the apartments were sold in batches makes it clear that the buyer was an organized body. For example, in Midtown the purchases were made in waves. Three two-room apartments were bought on September 20, eight more apartments on October 17, and 12 more the following day on October 18, and then eight more apartments on October 24 and 25.
At 12 Sarei Israel 14 apartments were bought on the same day in August including 12 two-room apartments averaging 44 square meters in size at an average price of NIS 1.814 million. The other two are 67 square meter, three-room apartments for NIS 2.89 million each.
Purchases in these two projects alone total NIS 200 million with clear signs that just one or two organized groups were behind these deals for small apartments in Jerusalem.
Jerusalem Real Estate broker Daniel Bouzaglo believes that at the very least, in the Midtown project, the buyers are groups of Israeli investors who have joined together, or real estate investment funds. Either way, according to him, these are parties who must have received good purchasing terms "in return" for the large numbers of apartments.
Bouzaglo says, "I assume that Israel Canada operated its well-oiled marketing machine and ensured for itself success through these presale channels, which promise bank support and financing for the project and gives it a huge push forward."
There are those that believe that the buyers are foreign residents, or even from haredi society. There is a reasonable basis for this due to growing interest from abroad in buying apartments in Israel, due to rising antisemitism.
Israel Realtors Association chairman Itzik Levy says, "Many foreign residents are interested in buying apartments in Israel in this period, and certainly in Jerusalem, which has always attracted them. There are organizations of entire communities from abroad today, which are interested in buying both for the hour of need and to strengthen the country. In a project like Midtown, they also get a view of the Old City and are within walking distance of the Western Wall, which of course adds to the demand from their part."
In addition, most of these purchases were made when the depreciation of the shekel was at its peak, which could translate into significant savings for buyers from abroad.
Builders didn't like small apartments in the past
Another anomalous statistics is the share of small apartments in the overall Jerusalem real estate market. The 75 two-room apartments bought in the capital since the start of the war represents 33% of the entire market.
Central Bureau of Statistics figures show that in the first nine months of 2023, sales of two-room apartments represented just 6% of overall sales nationwide and 9% in Jerusalem.
Bouzaglo stresses that the small apartments market in the capital is lively even in routine times. Currently, in almost every urban renewal project there are such apartments, because the municipality requires it. It also does not require a parking levy (a charge imposed on the developer by the municipality), and the land area, which is exempt from levies and taxes, is relatively large, so for the construction company it is a profitable product . What's more, in small apartments it is easier to raise the price because the starting threshold is lower due to their size. From the investor's point of view, this is also a worthwhile 'product,' especially if the predictions of a price jump after the war come true."
"For a long time, there were fewer small apartments in Jerusalem, mainly because the contractors didn't really like them," Levy adds. "But recently there is a growing demand for these apartments, both from investors who can offer them for rent, and also from single-parent families, divorcees and singles, for whom this is an excellent residential solution."
As a general rule, it is clear that the Jerusalem real estate market suffers less from the threat of the rockets fired at various regions in the country.
Consequently, since the start of the war in Jerusalem the Tax Authority has so far registered 244 deals followed by Haifa (223), Petah Tikva (143), Netanya (99), and Tel Aviv (77).
Published by Globes, Israel business news - en.globes.co.il - on November 30, 2023.
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