Israel’s ‘real estate abyss’: Identical homes, vastly different price tags

In the few hundred meters between the veteran eastern Tel Aviv neighborhoods of Yad Eliahu and Kfar Shalem, it seems there is a gaping real estate abyss. “Today, even a three-room apartment in an old rowhouse building in Yad Eliahu costs 2.7 million shekels (about $792,000). The exact same apartment, only 300 meters (about 330 yards) away, in Kfar Shalem, costs maybe 2 million shekels (about $587,000),” says Amihai Duvdevani, a broker at RE/MAX Ocean in Tel Aviv.

He doesn’t believe the discrepancy between the numbers is necessarily due to any real or especially tangible differences – but rather to the image of the neighborhood. “These are adjacent neighborhoods that are very similar. The buildings are more or less the same, the populations are similar – and in certain places Kfar Shalem even does better than its neighbor. However, in terms of demand and prices, the gaps are still very much in favor of Yad Eliahu.”

‘In eastern Tel Aviv, Yad Eliahu has the upper hand. The extensive urban renewal, the vast development and the proximity to downtown Tel Aviv are all expressed in prices.’

For years, Yad Eliahu has enjoyed good public relations as a developing neighborhood, explains Duvdevani. “We are hearing this everywhere. And in contrast, Kfar Shalem is perceived as a neighborhood that is still waiting for this process, even if that is not necessarily the reality.”

The real estate abyss between the veteran neighborhoods may be even deeper than Duvdevani’s example would indicate. An examination carried out for TheMarker by real estate appraiser and lawyer Nehama Bogin found that the price difference for four-room apartments in the two neighborhoods is a full 1.18 million shekels (about $346,000). Bogin’s assessment found that the average apartment price in Yad Eliahu, based on transactions reported to the Israel Tax Authority, is about 3.38 million shekels (about $991,000) whereas in Kfar Shalem the same properties sell for an average of only 2.2 million shekels (about $645,000).

“In the battle for the eastern part of Tel Aviv, Yad Eliahu has the upper hand. The extensive urban renewal, the vast development of infrastructures and the greater proximity to downtown Tel Aviv are all expressed in the price differentials,” says Bogin.

There is no clear mathematical formula behind price differentials. the branding issue is apparently the main factor in these gaps.

Dramatic price differentials can also be found between properties on either side of a road or a local shopping center. Bogin has examined several more pairs of neighborhoods around the country and found a similar picture: price gaps of hundreds of thousands of shekels, even though the land values are identical. There is no clear mathematical formula behind these gaps. However, the branding issue that Duvdevani mentioned, and the way a neighborhood is imprinted in municipal consciousness – are apparently the main factors in these gaps.
Thus, for example, there are the two major neighborhoods in Nes Tziona: Ramat Ben Zvi, a relatively established community in the northern part of the city, and its new neighbor Hadarei Semel. “When the construction of Hadarei Semel began, at the beginning of the 2000s, it was branded as the city’s flagship neighborhood and attracted stronger buyers,” says Bogin, who notes that the neighborhood maintained its status.
“Ever since its establishment, Hadarei Semel has been very much in demand,” notes Daniel Zamir of Anglo-Saxon Nes Ziona, adding, “While only a road separates it from Ramat Ben Zvi, it is a completely different neighborhood, with completely different populations.”

According to Zamir, in recent years Ramat Ben Zvi has been characterized by considerable urban renewal, with many projects being undertaken under the national master plan for strengthening old construction against earthquakes (Tama 38) and is the focus of lots of interest from real estate investors. “Nevertheless, the price differentials and the demand are still in the favor of Hadarei Semel, which consists mainly of new construction from the past 15 to 25 years. In Ramat Zvi, demand is also high – but in Hadarei Semel it is a completely different story. Properties are being snapped up,” he says.

• For young families priced out of homes, Galilee life remains out of reach

“The story of a neighborhood’s branding is sometimes justified, and sometimes it isn’t,” says appraiser Ohad Dannus. “There isn’t any pattern. The branding could be due to physical characteristics – for example a neighborhood characterized by old construction and large apartments, a neighborhood near the sea, a neighborhood on a park or one with many public spaces.
“Nevertheless, when you look at the differences between neighborhoods, you see that there are also many branding variables that are not physical; They have to do with the population living there, school quality, the community there. Is this a wealthy neighborhood? Educated? Strong? In many cases, especially in homogenous towns, this isn’t necessarily justified, but there is no doubt that it has an effect.”

Old versus new

Dannus believes that Israelis behave in the real estate market the same way they do in other consumer areas. They are conservative and value brand names, even when there is no solid basis for the reputation. Therefore, he says, neighborhoods often have a hard time shaking off an image, even if they have undergone a significant transformation that may enable them to offer a better quality of life than their neighbors. This, for example, often happens when an old neighborhood is adjacent to another neighborhood that has undergone urban renewal.
Neve David and Ramat Hanasi in Haifa are an example of this. According to Bogin’s review, the price of a four-room apartment in the two neighborhoods in the northern part of the city differs by an average of 390,000 shekels (about $114,000). However, in recent years the veteran Neve David neighborhood has been rapidly closing the gaps, especially versus its relatively new neighbor, Ramat Hanasi.

“The prices in Neve David have gone up dramatically in the past decade. Apartments that had cost 200,000 to 300,000 shekels (around $58,700 to $88,000), even properties not in very good condition at all – are touching and even surpassing 1 million shekels ($293,300),” says Erez Banker of Anglo Saxon Haifa. He describes considerable urban renewal momentum and increasing interest on the part of investors.

Rakefet Lahav, VP Marketing and Sales at the Lahav Group, which is building in the neighborhood, concurs: “If at the outset, people in Haifa were skeptical about the neighborhood, and saw it as an old place with neglected infrastructures and weren’t eager to move there – then today that has changed. Locals identify the processes that are underway there and the advantages they entail – and this is manifested in their willingness to buy apartments there.” She says that at the company’s project in the neighborhood, apartment prices have gone up by 15 percent in the past year alone – when they jumped from 2.1 million shekels ($615,000) for a five-room apartment in September of last year – to at least 2.4 million shekels (almost $704,000).
The promising potential and the many construction sites are not enough, however, to outdo the new neighborhood. Even when the buildings are renovated and the apartments are spacious and new, there is a difference between the advanced planning and the infrastructures of a modern neighborhood and the development in a neighborhood built at a different time. When we buy an apartment, we are also paying for the playground downstairs and the large parking lot and the adjacent park.

“Ramat Hanasi is a neighborhood that is 10 to 15 years old, characterized by many multi-story buildings and modern construction, and it attracts many families and second-time buyers from the area,” says Banker. “The gap between the neighborhoods is the difference between new and old – and I am not talking only about the buildings themselves. In Neve David there is indeed a lot of renewal and new construction, but in Ramat Hanasi the whole neighborhood is planned and built in a more modern way. It has an adjacent park, playgrounds for children, a commercial center – and everything is within walking distance, which barely exists in other neighborhoods in Haifa.”

‘Usually, a newly constructed neighborhood will have higher prices than neighborhoods undergoing urban renewal.’

“Usually, a newly constructed neighborhood will have higher prices than neighborhoods undergoing urban renewal,” adds appraiser and lawyer Erez Cohen. “This is based on the expectation that the new neighborhood will be better developed – with significant investment in infrastructures and public facilities, for example. In veteran neighborhoods, even ones that are undergoing urban renewal, there are often inherent limitations in the planning. For example, in many of those neighborhoods there are narrow roads, smaller lots and fewer options for adding public spaces. All these naturally affect the sale prices of properties in the neighborhood.”
Dannus, the appraiser, agrees and adds that it is important to remember that urban renewal can definitely better a neighborhood – but can also cause damage: “In places where the renewal is done poorly, it can create significant strain on the neighborhood, and cause problems in terms of accessibility, parking, noise and air pollution – and this will also be seen in home prices. In many places it is difficult to see and predict in advance – [and is clear ] only once the projects are populated.”

New construction

The Achisemach and Givat Hazeitim neighborhoods in Lod are a clear example of the price gaps that can occur between adjacent neighborhoods. The price differentials amount to more than half a million shekels (around $147,000) between properties located in two adjacent neighborhoods. “Achisemach is considered a new neighborhood, where there is no need to go downtown or to the industrial and commercial zones. By way of comparison, Givat Hazeitim is located in the center of the city, with very old buildings and municipal infrastructures in need of upgrading,” says Bogin. She predicts that these gaps will narrow significantly – because of the many urban renewal projects in the veteran neighborhood.

“Givat Hazeitim is an old, quite neglected neighborhood, with a veteran population that’s relatively poor,” adds Shevi Shneyorson, an Anglo-Saxon franchisee in the city. “Because of the prices there, which are relatively low, the urban renewal and the good return on investments there – it has been attracting many investors in recent years, which is creating quite a number of transactions there and also raising the prices. However, Achisemach is a completely new neighborhood, partly still under construction, which is attracting populations that want to live and settle there – especially Orthodox and ultra-Orthodox families.”

Dannus believes that new construction does not necessarily translate into a better apartment: “Let’s take for example Neve Avivim in Tel Aviv. It is an older neighborhood than its neighbors in north Tel Aviv like Kochav Hatsafon or Hagush Hagadol – but still, the prices there are higher. It is indeed older, but it is less densely populated, the apartments are larger and it is also perceived on the outside as something different from the neighborhoods adjacent to it – a place with old money, more solid, less nouveau riche.”
Cohen, too, holds that the old versus the new is only one of a long series of measures: “The three main components that create the gap between prices in adjacent neighborhoods are the population that lives in them, the planning and the neighborhood’s development potential, from the age of the buildings and the quality of the construction to the neighborhood’s planning. Does it have a school there, green spaces, a lively commercial center, access to public transportation and more,” he concludes.