While Saudi Arabia, Putin, the United Nations and nearly everyone around the world chastises Trump for moving the US Embassy to Jerusalem, the actual economy of Jerusalem may benefit. As perhaps the only location in the Middle East with full protection from a Western power, Jerusalem now stands as a military stronghold as well as a capital of culture and finance.
Real estate tends to improve in stable markets. Military strength is the number one indicator of a stable market [read: not economics]. With the US now declaring a virtual monopoly on the area for Israel and Western powers, does Jerusalem have the infrastructure necessary to capitalize within its real estate market?
What Jerusalem Looks Like Now
Jerusalem now ranks as the 46th most expensive city in the world. Without a doubt, it is one of the most expensive cities in the Middle East to live in.
Average cost of an apartment:
- in Jerusalem city center – US $1057.81 per square foot
- outside of Jerusalem city center – US $391.98 per square foot
Average rent of an apartment (one bedroom):
- in Jerusalem city center – US $1022.18 per month
- outside of Jerusalem city center – US $740.01 per month
Average rent of an apartment (three bedroom):
- in Jerusalem city center – US $1893.22 per month
- outside of Jerusalem city center – US $1377.22 per month
Experts are predicting that the real estate market in Jerusalem has farther to go.
New Real Estate Business in Jerusalem
Urban Place, a shared office property company that is based in Tel Aviv, recently announced that it would open its first location in Jerusalem shortly after Trump’s announcement on the embassy. The co-working specialists focus on up-and-coming entrepreneurs with a specialty in tech. The move is indicative of many companies looking to Jerusalem as a Middle Eastern Silicon Valley. Therefore this is only one of many companies looking to get in ahead of the predicted real estate explosion.
The move coincides with renewed interest in apartments and condos in Jerusalem. This entire market is focused on housing small and medium-sized business developers and entrepreneurs, the backbone of many real estate expansions across the world.
The Opposing View
There are those that say Israel, Jerusalem in particular, is in the middle of a housing bubble, not on the verge of an expansion.
According to the Central Bureau of Statistics, short-term housing prices in Israel experienced a slight drop year-over-year. As a result the drop was only 0.1 percent. This is enough for some critics of the market to pump the brakes on Jerusalem.
Finance Minister Moshe Kahlon actually attributed the price drop to higher productivity, nothing that mass-produced homes increased from 30,000 units to 130,000 units in 2017. In short, more houses were built for less money. Hence, this coincides with an increase in demand, not the decrease that lower housing prices normally indicate.
Jerusalem actually experienced a significant increase in housing prices over the same time period. Therefore the city enjoyed a 1.2 percent rise while the market in Tel Aviv decreased by 0.9 percent. Erez Cohen fo the Israeli Appraisal Association disagreed with the outlook of the finance minister, noting that foreign investors were running away from Jerusalem. However, the majority of these investors are European Jews, which actually raises an eyebrow. Wouldn’t these be exactly the people who would look to increase their holdings in Jerusalem now that the US is officially backing it?
The housing bubble that critics are referring to does not seem to exist
Consequently, home prices are steady and volatile within an acceptable range of movement.
With the tourism, the culture and the technology coming out of Jerusalem, an expansion in its real estate is inevitable. The renewed media attention on the area based on Trump’s recent announcement can actually become a net positive for the market as well. International investors should look to the way that local government responds to smaller businesses and retail investors moving into the area. This will be an indicator of how the big money will move once the heat dies down.