New companies are bidding in tenders beyond the Green Line for the first time, as more Israelis seek cheaper homes.

 Shlomit Tsur

The script is well known: the Ministry of Construction and Housing plans new homes beyond the Green Line, and, immediately afterwards, the Prime Minister's Office squawks to halt the activity, in response to US President Barack Obama. These tensions are affecting the real estate market: years of building freezes have caused pent-up demand in settlements in the territories, boosting home prices, as a result, contractors which previously avoided the area are now bidding in tenders there.

In early November, the Israel Land Authority published a tender for a lot in Ariel zoned for 90 apartments. No less than 15 bids were submitted, and the tender was won by Malibu Investments Inc. (TASE: MLBU.B1) with a bid of NIS 12.6 million, plus NIS 4.8 million in development costs,. The tender's minimum price was just NIS 271,000, and the assessor estimated the lot's value at NIS 3.5 million. Seven of the fifteen bids exceeded NIS 8 million, highlighting developers' confidence in Ariel.

This confidence is shared by Gindi Holdings Ltd. and Meshulam Levinstein Contracting and Engineering Ltd. (TASE:LEVI), suggesting that a change in the national consensus has occurred, as neither company had ever bid in a tender beyond the Green Line.

Malibu's winning bid reflected a price of NIS 200,000 per land per apartment, before VAT and development costs. In April, a winning bid in a tender for a lot zoned for 140 apartments in Ariel reflected a price of NIS 140,000 per land per apartment, before VAT and development costs - land prices in the city jumped 40% within six months.

The latest home sales data published by the Central Bureau of Statistics show that the contractors are right. In January-October, 943 new homes were sold in Judea and Samaria, almost 5% of home sales nationwide, compared with 609 homes sold in 2012 as a whole (2.7% of total sales), and 550 homes sold in 2011 (2.8% of total sales).

"Locations where it is possible to offer apartments for less than NIS 1 million are often found beyond the Green Line, because in high-demand areas the land component and development costs exceed NIS 1 million," says Malibu. "In settlements beyond the Green Line, it's easy to obtain Palestinian workers, which cuts construction costs by 20%. It's easier for a Palestinian worker to go to Modiin Ilit than Ramat Gan."

The Israel Land Authority also saw strong demand in a tender for a lot zoned for 30 apartments in Efrat in late November. There were 7-9 bids. The price per land per apartment was NIS 300,000.

Anglo-Saxon Real Estate Mate Benyamin concessionaire and general manager Arik Vaknish says, "Many people who want a better home than what they can get in a city like Jerusalem are moving to settlements in the regional council. Young couples and people seeking bigger apartments are coming from neighborhoods such as Pisgat Zeev, Givat Zeev, and Neve Yaakov, which are becoming haredi (ultra-orthodox), to settlements such as Anatot, Adam, Kfar Adumim, and Nili. Homes which sold for NIS 600,000 are now going for NIS 1 million, and the strongest demand is for five-room apartments."

Vaknish lives in Adam, located just 3.5 kilometers from Pisgat Zeev. He says he left Jerusalem's Talpiot neighborhood for the settlement 15 years ago. "There are now 1,200 families living in the settlement, and there is strong demand for new homes because people want their children to stay in the settlement and not leave. The settlement currently has a shortage of 1,000 apartments. We see our neighbors in Ramallah building at a dizzying pace, while in our area, we just begin something small and the whole world starts up with accusations. Why does no one complain when the Palestinians build the city of Rawabi, building thousands of apartments at NIS 500,000 apiece, while we barely build? This angers us, because the development of our settlements is dynamic, but land is not released."

Dona Engineering and Construction Ltd. built apartments in Ma'aleh Adumim in the 1990s through 2006 and sold houses in Ariel in 2009-10. "We do not consider Ma'aleh Adumim, the Etzion Bloc, and Efrat as the territories, but as Jerusalem's suburbs," says Dona VP marketing Ohad Saban. "Settlements such as Ariel, Shaarei Tikva, and Elkana are suburbs of central Israel." He notes that the company recently sold six-room houses in Shaarei Tikva at NIS 1.8 million each.

Saban says that the results of the tender in Ariel show that residents are confident enough to buy a home there, in terms of the expected population growth, and that contractors share this confidence. He believes that contractors are confident "because of the demand for homes and because the city has a university with 10,000 students. Despite the proximity of Rosh Ha'Ayin, there is still a difference in prices: a four-room apartment in Ariel costs NIS 900,000, compared with NIS 1.2 million in Rosh Ha'Ayin."

Saban says, "Ma'aleh Adumim is a 5-10 minute drive from Jerusalem's eastern neighborhoods, and is considered a sought-after town by Jerusalemites. After we built 1,000 apartments in Ma'aleh Adumim, construction was halted for diplomatic reasons, causing home prices to rise. Irrespective of the thousands of apartments that could be sold, there is potential to cool down the market."

Bemuna Ltd., which builds for the religious public. Bemuna CEO Israel Zeira says, "Prices are rising in part because of the government's astonishing decisions to dry up many settlements. Efrat, Ma'aleh Adumim, Betar Illit, and others, were never included in the Israel Land Authority's marketing map until this year, which sent land prices soaring, up to NIS 400,000 per land per apartment, including development."

Zeira adds, "For the sake of comparison, a few months ago, land was marketed in Beer Yaakov [a Tel Aviv suburb], which is seeing strong demand and rapid development, at exactly the same price of NIS 400,000 per land per apartment. There is no question that home prices beyond the Green Line will start from NIS 1 million at best. Anyone who opposes development in politically disputed areas is eliminating a substantial part of the State of Israel's land, so it will be no wonder if prices start to rise. A large part of the blame for the rise in home prices in recent years is because of the policy to freeze, openly or clandestinely, construction, including in Jerusalem."

No building in Ma'alehh Adumim

"In Ma'aleh Adumim, 1,000 housing units used to be built a year, and now, because of the diplomatic situation, barely 150 units are being built annually, which is not enough. It's not even the minimum needed for the city's natural population growth," says Ma'aleh Adumim Mayor Benny Kashriel. "There is no more land in Jerusalem, which is why residents are coming to Ma'aleh Adumim, especially from neighborhoods such as Pisgat Zeev, Gilo, and Har Homa, because of the high density in those neighborhoods, and because they are becoming haredi.

"Because there is demand for 4,000 apartments a year in Jerusalem, and the city's land reserves are used up, Jerusalemites usually go to two places: Ma'aleh Adumim, which is oriented to Jerusalem; and to Modiin, which is oriented to Tel Aviv. When building in Ma'aleh Adumim is frozen, central Israel benefits, because Jerusalemites move to Modiin, boosting the purchasing power in central Israel."

As for the E1 site, zoned for 3,500 housing units, Kashriel says, "Ma'aleh Adumim has 40,000 residents and could potentially have 100,000. We'll have another 50,000 residents with or without E1, because we're already working with the Civil Administration on planning land for 5,000 housing units in the city, and which does not include E1. Until now, the prime minister and the defense minister have not intervened in the planning process and the decision to stop the planning was exceptional.

"There are advantages to building in our area, because of the proximity of Palestinian cities, which provide available labor. Palestinians have a problem crossing the Green Line to work, so it's easy to work in construction in Ma'aleh Adumim. They come in the morning to work, and return to Ramallah in the evening, without the need for bureaucratic permits like the Chinese need. Moreover, a Palestinian earns $250 a month in Ramallah, and here he earns $1,000-1,200 a month, because Israeli labor laws apply here.

"We recently offered for sale 44 400-square meter lots zoned for private houses under build-your-own-home plans, in which the minimum price was NIS 600,000. All the lots were sold for NIS 800,000-1.2 million, including development costs. I didn’t believe we'd achieve such prices."

Melisron crosses the line

"When we bought the Ma'aleh Adumim Mall five years ago, it was failing," says Melisron CEO Avi Levy. "It was failing because it was far away, had no brands or retail chains, and local residents avoided it, preferring to shop in Jerusalem. The moment Melisron-British Israel entered the picture, it brought brands and retail chains… and the residents followed. The Ma'aleh Adumim Mall has one of the fastest growing store turnover growth. Five years ago, turnover growth began at 50-100%, and the annual growth is now 15-20%. Because of the growth in demand, we decided to build a cinema and approached Globus, which is building four movie halls."

Levy says, "There is room to do business in the territories too, and it's a fact that the mall operates exactly like malls elsewhere."

However, asked whether Melisron would build another mall beyond the Green Line, Levy says that, for the company, there is no financial justification for another mall in the territories in terms of purchasing power.

Published by Globes [online], Israel business news - www.globes-online.com - on December 2, 2013