Big time bubble?
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Tel Aviv or bust
http://www.haaretz.com/hasen/spages/895160.html
By Arik Mirovsky
"I don't see any alternative to buying an apartment in Tel Aviv," declares Dorit, a single mother with two children. She recently sold her previous Tel Aviv apartment and is looking for another with at least 4.5 rooms, north of the Yarkon River. She can pay up to $690,000. Yes, prices in the coastal city have risen terribly, she agrees, but that's where she longs to be.
Why? Well, Dorit has been living in Tel Aviv for 20 years. She feels connected to the city. She loves its dynamism, its cultural diversity, the entertainment options - and, naturally, she works there, too. She sees no reason to leave Tel Aviv, not even because of the daunting cost of housing. Nor will she contemplate renting: She must own.
"Renting would mean simply throwing away money," Dorit argues, adding that she isn't concerned that a mortgage would be a heavy burden, simply because she doesn't need a large one. She can pay most of the money up front.
Dorit and other people whom TheMarker spoke to belong to a specific subspecies of Tel Aviv homebuyer: They aren't millionaires seeking a luxury place in one of the new high-rises, they aren't looking for an apartment in one of the trendy neighborhoods like Neveh Tzedek in the south or one of the ritzy new neighborhoods in the north. Most didn't make their money on the stock exchange, either, but they do well and can afford to buy in the city, even after prices have swelled.
This subspecies amounts to thousands of households and it is the foundation on which the frothy Tel Aviv housing market rests. Yet this is a market characterized mainly by small, badly maintained apartments. Despite the grubbiness of these places, their prices have risen wildly in the last couple of years: from around $2,700 to $3,200 per square meter for two- to four-room apartments in the older neighborhoods of Tel Aviv, to $3,500 per square meter. And that's for places that need renovation, and/or those located in buildings with no elevator, without parking.
Higher quality apartments, with parking and elevator service, can cost $4,500 per square meter or more. Just three years ago that was the price for housing in the luxury towers.
Aviva and her life partner have been looking for a four-room apartment in an old neighborhood of North Tel Aviv for six months. They'd thought to pay $425,000. No luck.
"We got tired of renting," she explains. "But we're worried that the cost of buying an apartment is going to keep climbing, and in parallel the cost of renting is climbing, too." At present the couple rents a four-room apartment in the old part of North Tel Aviv that costs them $1,200 a month. That's about the sum they've earmarked for mortgage payments.
It isn't that they think buying an apartment is an ideal solution, but, Aviva explains, their desire for permanence has won out. Anyway, they own a place elsewhere and if they find the right apartment in Tel Aviv, they can sell the other one to help reduce the mortgage.
Actually, they did find the right place, a few times, but the asking prices were at least $520,000, she says. "When we found apartments within our price range they were too small, with no elevator or parking, or in areas that are less in demand."
Some people give up. Miri, for example, sought a three-room apartment in Tel Aviv's Hamashtela neighborhood for around $300,000. "I had an apartment in Givatayim and after that lived in Ramat Hasharon," she says. "I looked for an apartment in Ramat Hasharon or next to it in Tel Aviv."
One of her criteria was that the apartment be near a park, or at least some sort of green space. "But after I searched in Hamashtela, I concluded that it wouldn't pay," Miri says. "The owners that had apartments meeting my criteria wanted at least $320,000 to $330,000. And the apartments were small and badly built. In no way did the price seem appropriate." Finally she decided to buy a four-room apartment in a new project in Kiryat Ono.
Ilan and his wife encountered the same dilemma, and they too let go of the dream to buy in Tel Aviv - for now, at least. But it hasn't even crossed their mind to buy elsewhere. They've spent the last three years renting a three-room apartment just off Kikar Hamedina, for $900 a month ("And that's cheap," Ilan says). Lately, after his wife began working, they began looking at buying in the area. Not only did the landlord keep raising the rent, but buying has become a quality-of-life issue, Ilan points out. You get to decorate your own space the way you like. You want pink parquet, it's yours.
Originally they meant to sell the apartment they own in another city, to add their savings and take out a hefty mortgage. "We thought that our savings from not paying rent would cover two-thirds of the mortgage and that a chunk of my wife's salary would cover the other third," Ilan says.
Wrong. The dream died. "It doesn't pay," he admits. "We thought to buy for $350,000, but what you get for that money is an 80- or 90-square meter apartment, in bad condition, in an old building that needs serious renovation, with no parking or elevator. None of the apartments we saw was worth the investment, the huge undertaking with respect to the bank, or the monthly payments, and none looked like it would improve our quality of life."
For the time being Ilan and wife are going to keep renting.
How about an apartment in Ramat Gan, Herzliya or Givatayim? Many people in the population we are describing won't even consider it: It's Tel Aviv or nothing.
The result is a clamor for city housing despite constantly spiraling prices, and a resurgence in the demand for tiny, one- to three-room apartments. "Anywhere else in Israel, people demand that an apartment suit their needs. In Tel Aviv they'll compromise, just to buy an apartment," says Dr. Rina Degani, director of the Geocartography Institute.
The first compromise people make is size. "Usually the demand for small apartments comes from young couples without kids, divorcees and bachelors. That's the population that characterizes Tel Aviv and its surroundings," says Yossi Gordon, general manager of the Builders & Contractors Association in Israel, who thinks that developers should start building three-room apartments again: They've been out of fashion since the 1990s, but the demand exists today.
Meanwhile, the difference between a three-room and a four-room apartment can reach $100,000. More and more people are willing to settle for the former - including families with one or two children. The Central Bureau of Statistics says that 14 percent of the new apartments sold in January-March were small. But more to the point, the number was 50 percent higher than in the previous quarter. The pace at which small apartments are selling this year is higher than in 2005 or 2006.
Realtor Chaim Kaufman of Kaufman Properties blames part of the surge in prices on the trend of investors snapping up small apartments. They've bitten off much of the market, he says, and then they rent them at high prices, leaving few for sale.
Homebuyers aren't only compromising on price: They often have to borrow more than they thought they would. Two years ago Tel Aviv buyers borrowed half-a-million shekels on average, but today mortgages for apartments in the city start at NIS 600,000 and the monthly rate can run from NIS 5,000 to NIS 6,000. To repay that, the buyers have to net NIS 15,000 a month at least. Most young adults don't make that much. One upshot is that the concept of "young couples" is morphing: They aren't so young any more.