Property Sector: A Window To Israel’s Future – Analysis

By Zhao Zhijiang

The war between Israel and Hamas has been going on for six months, causing a massive humanitarian crisis with its large-scale armed conflicts. Since mid-April this year, Iran has launched high-profile symbolic retaliation against Israel through missile attacks, and Israel has responded accordingly. The Middle East tension seems to be constantly on the brink. The whole world is focusing on the progress of the war, paying attention to the missiles and drones launched in the region.

Assessing the future situation in the Middle East has hence become a crucial task. According to ANBOUND’s founder Kung Chan, while monitoring the war situation is essential, observing a particular market indicator will be able to provide more forward-looking insights about the future. This distinctive “window” he refers to is the real estate market in Tel Aviv.

Tel Aviv, located on the eastern Mediterranean coast, is internationally recognized as the capital of Israel. Founded in 1909, this city has evolved over the past century into a bustling modern metropolis, and sometimes it is touted as the “New York of the Middle East”. Not only is Tel Aviv the most densely populated area in Israel, but it is also the country’s economic hub that is gradually emerging as a world-class city. According to a 2021 survey by The Economist Intelligence Unit on the global cost of living index for 173 cities worldwide, Tel Aviv has surpassed major international cities like Paris, Zurich, New York, and Los Angeles as the “most expensive city” globally. Notably, the Tel Aviv metropolitan area, including satellite cities like Herzliya, Ramat Gan, and Ashdod, is dubbed “Silicon Wadi”, serving as Israel’s entrepreneurial epicenter. Statistics reveal that Tel Aviv hosts approximately 77% of Israel’s startups, 81% of investment firms, and 85% of the high-tech industry, attracting global tech giants such as Intel, Microsoft, and Google. Chinese companies also have a presence in Tel Aviv, with Huawei, Xiaomi, and Fosun establishing research centers and offices, while Kuang-Chi is also investing in the city.

The robust development of the tech sector has brought a large number of talents to Tel Aviv and propelled the rise of the local real estate and luxury housing market. According to a report from the international luxury real estate website Mansion Global, in 2019, significant gentrification occurred in what used to be slum areas of the city. The rent for a brand-new one-bedroom apartment was approximately 7,000 shekels per month, and the selling price could reach up to 2.4 million shekels. Around 2009, apartments of similar quality may have sold for only 1.3 million shekels, with a monthly rent of around 4,000 shekels. This is mainly due to the influx of a large number of young tech talents into such areas. Additionally, various new development projects can be seen in the coastal areas of Tel Aviv, with well-equipped facilities comparable to high-end properties in the United States. Industry insiders indicate that tech talents working tirelessly in Tel Aviv are willing to generously invest in luxury properties and have higher expectations for quality of life, thus developers strive to meet their needs.

It should be noted that the tech sector is only a partial factor driving the real estate market in Tel Aviv, and indeed in the country. Another major force comes from the influx of Jewish immigrants. In the 1990s, Israel experienced an explosive influx of over three million high-quality immigrants, with a significant portion coming from the former Soviet Union. After the collapse of the Soviet Union, a large number of Jewish scientists, engineers, and technical personnel immigrated to Israel. Tel Aviv, as a hub for the technology industry, became their primary destination. In recent years, with the resurgence of global anti-Semitism, Jews from Europe, the U.S., and other regions have started paying attention to the real estate market in Tel Aviv in general and in Israel as a whole. Some analysts point out that many Jews see purchasing Israeli real estate as a form of “insurance” because they can have a refuge in case political conflicts and rising anti-Semitism in their own countries reach a critical point. It is understood that compared to cities like Vancouver or Sydney, luxury home prices in Tel Aviv are relatively affordable for foreign buyers. It is worth mentioning that in recent years, as Israel-China economic and trade relations have deepened, many Chinese companies have sent executives to Tel Aviv, leading to increased demand for local real estate. It has been reported that Chinese buyers not only purchase vacation homes but also spend between 3.8 million to 15 million shekels to buy apartments for rental income or future resale.

In October 2023, the conflict between Israel and Hamas erupted. Data from the real estate website Properstar shows that the prices of apartments in Tel Aviv dropped from 63,865 shekels per square meter in September 2023 to 61,963 shekels per square meter at the beginning of the conflict. However, apartment prices began to rebound from November 2023, reaching 63,155 shekels per square meter in March of this year. Meanwhile, due to the sudden outbreak of war, the prices of detached houses in Tel Aviv dropped from 53,835 shekels per square meter in October 2023 to 52,100 shekels per square meter in March of this year. However, looking at the data from January 2021, the overall trend of detached house prices in the city still shows an upward trajectory. In January 2021, detached houses were priced at only 39,991 shekels per square meter. In other words, the Israel-Hamas conflict did not completely impact the real estate market in Tel Aviv but rather the property sector shows signs of “prospering as it may”.

As such market economy is a desensitized economic model, it can be used to observe and assess the future situation in the Middle East.

Despite the unrest in the Middle East, global investors remain unconvinced that the war will cause the Israeli economy to collapse or that Tel Aviv’s real estate market will crumble. Even amidst the ongoing conflict, the city continues to attract investment from the technology industry and other sectors, leading to an increase in property prices rather than a decline. This resilience suggests that the global market and the international community have significant confidence in the prospects of Tel Aviv and Israel. All in all, various predictions of Israel’s downfall are likely baseless in reality.

Historical crises have shown that regardless of war or economic issues, the Israeli economy has been able to recover quickly. In all likelihood, once the Israel-Hamas conflict approaches its conclusion and tensions in the Israel-Iran region begin to ease, Tel Aviv’s real estate will experience a renewed and even higher peak of development, becoming even more prosperous. Israel’s robust tech sector provided an essential development logic that continuously brings in substantial investments and talent resources. Coupled with the possibility of more Jewish immigration to Israel, the future will undoubtedly see the Tel Aviv real estate market thriving even more, making this “window” even more attractive.

Final Analysis Conclusion:

Despite the ongoing turmoil and conflict, Israel will not witness its decline. Instead, there will be sustained growth. Continuous global support ensures Israel’s enduring presence as a regional hegemon in the Middle East, where it will assert even greater regional dominance.

Zhao Zhijiang is a researcher at ANBOUND