The Israeli dream of a house and garden is gaining renewed momentum. Plots for construction of a house and garden have become a popular real estate trend in the last three years, boosted by the Covid lockdowns, especially in the south of the country.
Israel’s planning authorities do not like these house and garden neighborhoods, which also encourage use of cars, and prefer denser apartment construction. The planning authorities are making efforts to reduce the number of houses through planning changes and limiting new such neighborhoods only to rural areas, mainly outside the center of the country.
On the other hand, mayors in these outlying regions welcome construction of house and garden neighborhoods, because they can attract young strong socioeconomic households. Large reserves of land in outlying regions, mainly in the south, allows the Israel Land Authority (ILA) to market land for thousands of build your own house lots in various places. However, at the same time, the ILA is indicating that it will not continue to do so for much longer, which has further boosted demand for the house and garden market.
A reincarnation of the Israeli housing dream
For years the Israeli housing dream was to live in a garden apartment in the suburbs. In recent decades, the quality of high-density construction has been greatly improved, and a new dream also emerged of a penthouse with a city view.
At the same time more than a decade ago, the number of building starts of detached houses and semi-detached houses, reached 13-14,000 per year as a house and garden became the new dream. From 2017 their numbers decreased, and between 2019 and 2021 did not cross the threshold of 10,000 units per year. But in the last two years there has been a recovery in their number, which returned to its level in 2018, but it is still a number that is 30% lower and more than it was a decade ago.
The decline in activity in the field in recent years has been met with an increase in demand for lots, following the outbreak of the Covid virus. The work-from-home arrangements that began in those days opened a certain opening for flexibility in housing locations and moving away from employment centers. This trend revealed that the dream of a house and garden is still very much alive among many.
The place of the house and garden in Israel’s changing housing market
The overall housing market is currently experiencing a large fall in the number of deals and a slight decline in housing prices. ILA tenders for high density building have seen a large fall in response, with bids that are tens of percent lower than the original valuations and tenders for which no bids are lodged at all.
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These tender decreases are mainly taking place in outlying regions and the long-term rental construction industry, which have been decimated by high interest rates. In the center of the country, prices that developers are willing to pay are much lower than the ILA’s valuations.
But in the market for lots for houses with gardens, the picture is different – the constraints and considerations of the players operating in these two markets are different, the motivations are different, and therefore their behavior is different.
From the moment buyers see the lots they are purchasing as their future home, they treats the matter differently than developers who see land as a source for future projects.
It is the business aspect as well as the sentiment. Once a person is freed from the need to calculate what the future market will look like and at what price they can sell the home they are building, they are much more flexible.
Of course, the sums invested in the plot for a single housing unit are also much lower, and a person with means – which is usually the section of buyers of land for a house and garden, can manage the high interest rates, unlike much of the mainstream market. In contrast, a high-density construction developer is very attentive to the market, and behavior of potential buyers.
Demand is soaring and prices are rising accordingly
These differences have contributed to a wave of price rises in the house-garden sector, which has led to the increase in land prices for such land, which is the basic and most important element in the house-garden sector. How much have prices gone up? Beyond Tax Authority data and anecdotal evidence from real estate professionals and bids for ILA tenders, only one study has been conducted on this by the Bank of Israel in its 2021 annual report.
According to study, from the first Covid lockdown in March 2020 until the end of 2021, prices of lots for houses increased by about 13%, while apartment prices rose between 5% and 8%.
This research has not since been updated since then, however, based on reports from real estate professionals and relying on the high apartment price indices recorded in 2021 and 2022, it is clear that this wave continued long after that and this situation continues to a large extent even today.
For two large tenders that included 576 lots in a mix of sizes of 400-700 square meters in Beersheva’s Rakefet neighborhood, about 4,500 bids were received. In the land tender for 297 housing units in Meitar in 2021, 3,114 bids were submitted. For each lot included In the tender held this year for 193 detached housing units in Ramat Yoram in Netivot, over 100 bids were submitted. Since the beginning of 2021, tenders have been held for 694 detached units in Beersheva, 630 in Dimona and 376 in Netivot and this is only a regional picture.
At the macro level, during this period, the ILA issued land tenders for about 12,000 detached housing units – 50% in the south, 35% in the north, 10% in the Haifa district and the rest in Jerusalem, the center, Tel Aviv and Judea and Samaria. A minority of them were canceled, and most of them ended with complete success of the sale of all the lots that were marketed.
This is especially noticeable due to the recent failure of a large part of the other ILA land tenders, especially in outlying regions. And here, where the demand for land for construction of high density apartment neighborhoods is low, demand for land for houses and gardens continues to be high, which only highlights the different attitudes of Individual buyers for lots and developers.
The Rakefet neighborhood in Beersheva: Prices jump 120%
Reinforcing the point that the large supply of lots in Beersheva is still far from satisfying demand, can be seen in the Kalaniot neighborhood in northwest Beersheva, next to the Rakefet neighborhood.
As part of the ILA’s land marketing, the lots were sold in 2017 for about NIS 1,700 per square meter on average. Prices rose relatively moderately until 2020, then they jumped to an average level of about NIS 2,300 per square meter. Since then, they continued to rise at an extremely rapid pace in 2021-2022 as well. This year they rose relatively moderately and reached about NIS 3,700 per square meter – an increase of almost 120% – three times the increase of the apartment price index over this period.
An examination of one of the tenders revealed that the median price at which it was closed reached NIS 770,000 per lot, while the appraised value was about NIS 710,000 – meaning the price was about 8.5% higher than the appraised value. However, the tenders in the Harakefet neighborhood were closed at the end of last year, so the impact of rising interest rates, and the full economic significance of the new reality, have not yet been fully priced into the market.
The tender in Ramat Yoram in Netivot was closed in June 2023, and the lots in it were divided into three sizes. The prices received reached an average of NIS 300,000 for the small plots of 300-400 square meters; NIS 470,000 for the medium-sized plots of 500 square meters; and NIS 640,000 for the large plots of 700-800 square meters.
A jump of over NIS 1 million in five years
One of the most interesting places for houses and gardens is the Achziv neighborhood north of Nahariya. Close to the beach and the Achziv nature reserve, this is one of the most special locations in Israel.
The neighborhood includes mostly high-density apartments neighborhoods, but also 400-600 square meter lots for houses and gardens. The lots were initially marketed in 2017 for NIS 1 million.
The most recent deals for lots recorded in the Israel Tax Authority website were at the end of 2022, in which the price for lots had risen to NIS 2.4 million.
It is possible to identify investor activity in the area. For example, a 484 square meter lot, which was sold in August 2017 for NIS 1 million, and was sold again in October 2021 for NIS 1.6 million (60% profit); another 525-square-meter lot was purchased in July 2018 for NIS 1.55 million and sold in July 2022 for NIS 2.55 million (65% profit). A 414 square meter lot purchased in April 2018 for NIS 1.5 million was sold in December 2022 for NIS 2.17 million (44% profit).
The community village of Timrat, which overlooks the Jezreel Valley from the southern hills of the Lower Galilee, suffered for years from a land shortage. In 2016, a plan to expand the settlement by 150 lots was approved, following which two ILA tenders were held there, in 2019 and 2021. As part of the tenders, about 130 lots were sold, with priority for the disabled and those who did not own a home.
The plots were divided into two types: the first – plots of 250 square meters for semi-detached houses, and the second – plots of 400 square meters for detached houses.
In the first lotteries of 2019, the small lots were sold for between NIS 250,000 and NIS 400,000 and in the second lotteries, two years later lots were sold for between NIS 500,000 and NIS 700,000, while the large lots were sold in the first lotteries for NIS 500-700,000 and in the second lotteries for NIS 900,000 up to NIS 1.1 million.
In other words, in between lotteries price increases of tens of percent or more were recorded, probably reflecting the great feeling of scarcity that prevailed in Timrat for almost 30 years. In Timrat this year, 30 children started first grade, after years of near empty classes.
Take one 400 square meter lot in Timrat, which was sold in May 2022 in the second round of lotteries for NIS 1.02 million. Just two months later the lot was sold for NIS 1.65 million – a handsome profit of 65% within 60 days. But that is not the end of the story. The same lot was sold two months ago for NIS 2.6 million, which means an additional 60% profit. In total, the price of the lot increased by 155% in just over a year.
The price jumped 17-fold in less than five years
In Kfar Vradim there are more examples of large profits made from build-your-own-home lots. At the start of 2018, the ILA held a tender for 125 lots of 500 square meters each. Prices received for the lots ranged between NIS 50,000 and NIS 100,000.
A lot purchased in 2018 in Kfar Vradim for NIS 73,000 was sold in November 2022 for NIS 690,000. Another lot that was purchased in a tender for NIS 83,000 has since been sold twice. The first time in November 2020 for NIS 750,000, and then a year later, in November 2021, for NIS 1.45 million, 17 times the original price.
Real estate appraiser Yariv Drori confirms that indeed during this period there was an increase in the prices of plots of land in Kfar Vradim. “It used to be that you could find large properties in the old neighborhood for NIS 2 million. Today, deals are closed at much higher prices, which were not there before. A small new semi-detached house was also sold for NIS 2.155 million. Detached houses were sold NIS 2.8-3.4 million, numbers that were not there before.”
According to Drori, part of the explanation for the price increases lies in the “import” of the price rises from Central Israel to the periphery. “Although we are talking about the periphery and the prices here are not relatively high, but we see many buyers who come to the north from the center, and then a person who sells an apartment in Holon, can purchase a property in the north.
“In other words, there is a kind of diffusion here, which increased as a result of what happened during Covid, and led to the fact that the price increases in the center also indirectly contributed to the price increases of lots in the outlying regions,” he explains.
How long can this process last? Drori and another land appraiser Ohad Vertesh do not believe for a long time. “The real estate market can’t go up forever, and I have a hard time seeing the ‘safe stock’ of plots of land attached to land continue to raise prices endlessly,” says Vertesh.
Drori agrees, “This reality is not forever. Purchasing power will eventually balance it out, and demand will also encounter prices that people will not want and will not be able to pay. Eventually, I estimate that the money will run out and the ability to repeatedly raise prices will stop. These properties will become ‘proper’ luxury, with prices that only a few can afford.”
Published by Globes, Israel business news – en.globes.co.il – on September 26, 2023.
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