Prices of owned apartments, by region, 2006 increase
(average percent change from 2005)

Source: Central Bureau of Statistics

As reported in The Marker, Israel's economic and financial daily, the New York recently published an article praising Israel's real estate market, describing it as "more attractive than the Hamptons". The article made special reference to the real estate market in Tel Aviv and Jerusalem, and indeed there is clear evidence of luxury apartment blocks being constructed in Tel Aviv, and of the purchase of luxury apartments – mostly by foreigners – in Jerusalem.

But the question is whether there is a boom in Israel's real estate market as a whole, or only in the luxury part of this market? The most up-to-date information on apartment prices clearly does not show an overall boom (see graph). Apartment prices did increase on average in 2006 by 5.5%, but price increases were concentrated in Jerusalem (12%) and Tel Aviv (5.3%), the two areas mentioned in the New York Times article, and also in the Sharon area (5.2%).

Not surprisingly, apartment prices in Haifa and the Northern region declined, in the wake of the July-August 2006 war, which principally affected that area of Israel, but in other area, not affected by the war (Gush Dan, Central, Southern), there were no significantly positive price developments.

This lack of overall recovery in real estate remains a dilemma, given the strong recovery of macro-economic activity over the past 3-4 years.

Even regarding the luxury market, analysts are asking about the economic sense behind all the luxury apartments being constructed at the present time in the Tel Aviv area. The luxury market is a limited market, and it is not clear that there will be sufficient demand to match the supply of these new luxury apartments.

Tracking the Israeli real estate market is likely to be extremely interesting for the foreseeable future.

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