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Israel unlikely champ in global real estate

A couple of people sent me a copy of this article, so I thought I’d post an abridged version. (Full article here)

What is interesting is that it came down the AP wire service. They usually don’t produce such positive pieces about Israel.

Here’s the edited article:

JERUSALEM – Israel, despite perennial fears of war, has emerged as one of the hottest — and least likely — property markets in the world: Since real estate collapsed around the globe in 2008, at least one industry watchdog lists it as the fastest-rising property market on earth.

But with global economic meltdown — and the subprime mortgage fiasco that precipitated it — still fresh in people’s minds, officials are stepping up efforts to rein in its overheated property sector. The fear is that a property bubble could shake confidence in an economy that withstood the worst of the world’s financial crisis.

In the span of months, the central bank has raised interest rates several times and the government is rallying to build new units in this land-strapped country.

“The housing market has set off enough crises, and we’re not going to let that happen in Israel,” Bank of Israel Governor Stanley Fischer said earlier this month in announcing his sixth rate hike in just over a year.

Amid [the global real-estate] downturn, Israel stood firm, shielded in part by the fact that its property price gains were late in coming. While many countries were on a property high during the middle part of the decade, its market was largely stagnant.

Its banks offered nothing close to the U.S.-style subprime mortgages, and Israel’s financial market is not intertwined with the mortgage market — the main reason for the U.S. housing meltdown. Down payment requirements remained high, often equal to more than 40 percent of a house’s value.

What fueled the boom, however, were rock bottom interest rates and a relatively low supply of housing. The result was a nearly 30 percent jump in property prices since September 2008.

“The problem … is demand versus supply,” Kaufman said. “Too many people want apartments. Nothing is going to stop these rises.”

Over the past five to six years, “they didn’t build enough,” she said, adding that housing was not something that could be imported to balance supply and demand.

“It takes time,” she said.

But it’s time that Israelis, increasingly, can’t afford.

Today, a three-bedroom apartment in Tel Aviv, with its beaches, balmy weather and freewheeling spirit, fetched an average 2.15 million shekels, or $560,000, in June, compared with 1.73 million shekels a year earlier, according to government statistics.

The price of an average apartment in Jerusalem, with its holy sites and mixture of ancient and new, rose 19 percent to 1.55 million shekels, or $403,000, at the end of June from 1.31 million shekels a year earlier.

But officials have also not sat idle. The country’s skyline is dotted with apartment towers and cranes, and a recent reform in the government-run Israel Lands Administration is designed to free up more land for construction.

Even before that reform was enacted, housing starts were up more than 20 percent in the second quarter of 2010 from the first three months of the year. Finance Minister Yuval Steinitz, however, told a business conference on Tuesday that it would take up to two years to solve the supply-side problem.

Dar, the economist, has long disputed assessments that Israel was experiencing a housing bubble. She describes it as “more babble than bubble” because the recent boom follows roughly a decade of stagnant prices in inflation-adjusted terms.

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