Some Thoughts on Israeli Real Estate Prices

A few months ago a small 3 room apartment of 90 sq. meters on Nachmani Street in Tel Aviv
sold for 3,600,000 NIS. Nachmani Street is located in historical Tel Aviv in what is called “Lev
Hair” the heart of the city. It is a street right off the well-known Rothchild Blvd known for
many of its historical buildings.

While it is understandable that a simple apartment in that area of Tel Aviv would fetch such a high price, real estate all over Israel is also on the high side. The question to be asked is why are prices in Israel so high?

It is a well known fact that 90% of the land in Israel is owned by the government and
administered by a government agency called the Israeli Land Authority (ILA). The ILA,
together with local municipalities, makes decisions concerning town plans and the
marketing and development of these lands.

The rights to develop these lands are sold in the following manner: The ILA assesses the worth of the land, a tender is announced and
construction companies bid on the rights to develop the land. If there are no bids that cover
the price of the land according to the assessment then the bid is cancelled and repeated
again at a later date.

It is clear that the main cause of the high apartment prices  is the
high price of the land, or the rights to develop the land that the ILA charges construction
companies. These construction companies sell the apartments that they build at cost plus a
profit. If the cost of the land is high then the final price of the apartments sold will be high.

Instead of lowering the price of the land at the source, the Israeli government has made
the citizens themselves pay the price of the high real estate prices. The government
has, through a series of decrees over the past few years and in the guise of lowering the
apartment prices, done much to chase away real estate investors.