Israel’s mobile market: catching up with price wars

Israelis are some of the chattiest
mobile users. They are also a bit gadget crazy. But until a year ago, mobile service prices were about 2 to 3 times what they
were in Europe. Nobody could explain this. There are three large
mobile service providers: Pelephone, Cellcom, and Partner (Orange). So it wasn’t the problem of competition. While prices for service and phones was high, Israelis still kept on
blabbing and paying (average of 250 shekels a month, about $70). A
year ago (May 2012) Golan Telecom started business by offering “all
you can use” monthly packages for 99 shekels. This offer shook the
mobile operator market and soon the main operators started offering
even lower price monthly packages (down to 70 shekel, about $19). A
year later, about half of the Israeli mobile phone users have
switched to the low cost packages. This is to some concern to both
operators and government regulators. Mostly because it means that
half of the users have older packages and are probably paying much
more (the old rates, before Golan came out.)  

On the phone handset front, Israelis
are going smart phone crazy. From the earliest days of Apple’s
iPhone, Israelis were big users. Once the various Android phones came
out, the lower prices attracted buyers, especially parents buying
phones for kids. Today, Android phones outsell iPhones about two to
one. There are many models that seem to attract budget conscious
buyers like phones from Sony, LG and Nokia. But by far, the largest
phone seen on Tel Aviv streets are Samsung Galaxy. The Galaxy line
comes from low cost small models (mini VE, about 1,000 shekels, about
$280) to the latest S4 at 4,400 shekels (Orange site, about $1,220).
In general, you can get a phone at a better price from an independent
seller (not the mobile operators with monthly payment plans).
With the popular use of tablet
computers, mobile operators have been selling more data plans. Also,
as Golan Telecom became successful against the three traditional
mobile operators, many organizations like supermarkets and electric
appliance chains started offering their own branded mobile plans. The
market in Israel is small compared to European countries, yet there
is activity to offer new products and services all the time. If you
are coming from Europe or the United States, do some comparison
shopping before jumping at the first plan someone recommends. Today,
regulation forbids mobile operators to lock users into long
multi-year plans. So you buy service essentially at a monthly rate
and can switch plans any time. If you have a good smart phone, bring it along, you may be able to use it with a simple SIM replacement (you can usually add Hebrew support by adding a language and downloading options off the web).

Luxury Homes in Green: Gardens and Parks (in the city)

The first impressions of Israel people
remember is “the green”. It surprises Europeans and
Americans, who come from wet climate, to see so much green foliage in
a semi-arid environment. Israel’s history explains the obsession with
making the land green. So today, one of the luxuries in living is
having a private garden or living close to a public garden. The
ultimate luxury is a private garden, no matter how small. From a few
large pots on a balcony to a piece of land enough for one large fruit
tree. All the way to living at the edge of a public garden (similar
to American obsession of building at the edge of a private golf

Luxury properties in Israel is not
measured strictly by the property build and design. The location and
surrounding area are also a component in luxury. Sometimes the two go
together. Yet, in some situations, a small or old property can have a
high value by offering a great (i.e. green) location. A small-old two
bedroom apartment on Yehoshua park (Ha’Yarkon) in north Tel Aviv, is
more valuable than a bigger one on a quiet street in north Tel Aviv
just a few streets away. A first floor apartment with a private
garden can be more desirable than one on the fourth floor (in most
central Israel cities.) Sometimes, private gardens are used by
private kindergarten or after school businesses. This use makes sense
in terms of higher value. Yet, other properties simply offer a small
private green spot to sit at an end of the day. Just below a private
garden come large green balconies. In large apartments, especially in
new buildings, large balconies are turned into small gardens with
large pots for trees and bushes. Today there are even new
construction designed with strong built-in pots or even shared
building “hanging gardens”. These are less common,
yet still add value to a property.
Next in the value hierarchy to a private green area are
public and community parks. Apartments and small homes next to public
parks also have high value to residents, it’s not “just yours” but at least it’s green. Public parks, usually means
quiet areas and well maintained green views. In better neighborhoods,
new construction usually also includes green areas in between high
rise construction. In older neighborhoods, mostly surrounding Tel
Aviv proper (Ramat Gan, Givatay’im, Hetzeliya, Petach Tivka), dense
apartment construction also included green areas between apartment
block and even between buildings. For the most part, these areas are
maintained in good shape only in the better towns and neighborhoods.
Last come small private homes in
agricultural villages (moshavim) and kibbutzims (collective
settlement). These have been alternatives to living in cities which
have standard commercial and community services (i.e shops, schools,
and clinics). Agricultural communities can be in close proximity to
cities but usually do not offer any commercial or community services.
This means traveling by car for everything from school to medical
appointments. This class of properties offers green private gardens
and proximity to agricultural areas. Don’t be surprised to live next
to a peanut field or to hear a rooster crowing at first light. But
the distance from daily needs takes away from the desirability and
the value of these properties. Here you will find a unique (some say
strange) blend if residents which value quiet green surroundings
above daily creature comforts. Although, families seeking green
living with less money also make the trade-off between green
surroundings and daily services convenience.  
So if you come to Israel and are
looking for a luxury apartment, don’t forget the “green
. You can have fine urban living with a small yard
and your own fruit tree. This is something unique to the Israeli
living culture: combining American suburbia and central Paris. The
green factor can also indicate the quality of an apartment, sometimes
hinting at luxury construction and finish. Getting a feel of how
luxury value goes with proximity to green spaces is not difficult,
examples of specific properties (will be given in the future) is
helpful to the uninitiated.   

Opportunity for Americans: Israeli Luxury Home Market: Turning Normal?

Israeli real estate market has been in
an upmarket phase for over two decades. Luxury homes and apartments
were the engine that drove building and architecture fields into a
strong and growing market segment. Luxury construction has even
become a vital export segment. Israeli architects and builders are
exporting construction services due to their luxury construction
experience. Finally, luxury construction has been a key Israeli
success story, to the point, of attracting investors and individuals
to buy homes in Israel, bringing in dollars and euros. With all that,
it seems like the luxury propery party is over, or at least taking a
rest. Luxury apartments in the Tel Aviv area are not selling in 2012
as fast as they did earlier. Also, high visibility projects with very
high price units (above 100 million shekel per property, about $50
million) are also sitting without much interest. (where are Ellison,
Brofman, and Adelman when you need them?) 

The first question to ask is: “did
builders reached the peak of luxury and price?”
If a 200
million shekel penthouse does not sell, it does not mean that a 20
million shekel unit just two floors down will not sell. Another
question: “is the luxury property market saturated?”
But sales are not totally dead, just not keeping up with construction
output. Whatever the answers, everyone is worried about possible
collapse of prices, similar to the US and Europe. The Israeli real
estate market is not driven by speculation and is less leveraged than
other markets. For the most part, large inventory is not sitting
around empty (like in other markets.) Finally, the amount of defaults
by individuals and more important by builders and investors, is not
increasing at an alarming rate. More important, banks are not
suffering (and closing) as in other countries. Obviously, some
architects and builders have invested and are leveraged heavily. They
are stuck and are sometimes forced to re-negotiate their credit terms
with investors and banks. What we see so far, is simply people
“sitting” on their properties. When a building is
not selling, prices are reduced by only a few percentage points (3%
to 10%), or attractive incentives are offered.
Just to get a feel, here are a few
developments we see. Buildings in construction, within a year of
finish are offering 20% down payment and the rest at delivery. This
is a new development in our market, where full payment was usually
required six months before a building is finished. One project in
Ramat Gan has stopped interior finish work and is selling “4
walls and sand floor”
at 500,000 shekel discount. They
claim an apartment can be finished for as little as 200,000 shekels.
Would luxury apartment buyers or investors want to manage final
construction on their own? (see, Globes article: Israel’s Luxury home
market stagnating:
) Finally, finished apartments, especially in larger developments,
are being offered in “sales fairs”. Some are targeted at
specific segments like government workers, young families, or
independent workers. Targeted marketing seem to go with some
financing deal the government or a bank has to offer.  

100 Days to Lapid and Bennett Governing REVOLUTION!

Yesterday (Tuesday 25-June-13) was the
100th day anniversary of Yair Lapid’s and Naftali Bennett’s
in office. Israeli media and government has taken a page from the
American administration change: promise to make sweeping changes in
the first 100 days in office. After all, if you have an agenda and
you think you can change how government serves the citizens, you
should be able to do something right away.

 Just as a refresher: Lapid and Bennett
were elected as dark horses with 31 total Knesset seats (as much and
Netanyahu’s and Lieberman’s seats) which was a surprise in the last
elections. Their promise to the voters ran from more equitable
taxation and social benefits to the middle class… to better
negotiation with the Palestinians (mostly economically and foreign
relations). The big surprise came in the strength of new votes cast
for these two new contenders. Lapid was best known as a TV
commentator, taking a left wing position. He was also known as a
voice of the middle class which was quickly rising during the 1990’s
to today. Bennett was a successful high-technology entrepreneur
looking to make a change in government. Recently he served as
Netanyahu’s chief of staff and was reported to somehow offend the
prime minister and quietly dismissed. Both Lapid and Bennett were are
considered more mainstream (central) than Netanyahu and Lieberman.
This fact itself seemed to have drawn strong voter support in the
last elections. The Israeli mainstream seem to come out against right
wing policy of the government headed by Netanyahu.
Flash back to this 100 day government
anniversary. While Lapid and Bennett promised big changes in
government policy, reality in taxation and legislation is more
complicated. Lapid ran on balancing government spending priorities
towards the middle class (and less social welfare handouts.) He
claimed unjust support of religious minorities and territory
settlers. It seemed to middle class Israelis that right wing payback
by Netanyahu went too far. But Lapid found out the hard way how
changes in welfare budgets can be delayed indefinitely. Bennett on
the other hand promised “equality in responsibility” to
the state. This term equates to “make the yeshiva students serve in
the army”. Much like Lapid, Bennett found out how difficult
entrenched government policies are to change. The religious orthodox
community has been shaping government policies to it’s needs for
years. So two well meaning centrist politicians, no matter how smart
or how much popular support they have, can simply go away. It is not
that simple or that clear cut – at least not on daily basis. But it
is somewhat that way. In the big picture, just about all democracies
face the same dilemma. Do what seems right and moral (support the
welfare of the poor and weak), or go with popular opinion (and leave
the weak at the bottom.) This is one moral dilemma Israelis face
today. Stay tuned to changes… they are happening every day.

Economic Wows: Between A Social Contract and Adam Smith

Israel’s economic state is in a constant state of change. Israel’s economy took a turn for the worst in the last four years. There are two culprits for the change. The first is Netanyahu’s government liberal spending both on infrastructure and on social benefits. The second is the global downturn, mostly the downturn in Europe. Contrary to general belief, Israel is not yet in the category of a developed country. While there are many similarities with European and developing countries (i.e. BRIC). As BRIC block countries are making  fast economic progress based on vast natural resources and progressive economic changes, Israel’s economic progress is strictly based on high productivity and structural advantages. The difference between Israel’s economic progress is clear to see over the last decade. While Israel’s economy has grown by 4%,most BRIC growth rate ran an average of 8% with up to 12% in China some years (China 10%, India 9%, Brazil 4%, Russia  7%; average yearly GDP growth 2003 to 2013).

Social and economic trends around the world highly influence Israeli public opinion. Israeli public opinion eventually influence government policy (through protest and elections). Add to that, the great sensitivity of Israelis to world public opinion, and you have the strange mix contributing to Israeli economic swings. The latest downturn comes as “surprise” 40 Billion Shekel budget deficit. It is called a “surprise” because somehow, during the last four years, Israel’s economy, and certainly the government’s budget, was deemed to be a “miracle” among all the other countries who are essentially bankrupt (think Greece, Spain, and Ireland). Even when Shaul Mofaz, an opposition member of knesset, pointed out the 40 billion shekel deficit, Netanyahu’s cronies ridiculed and dismissed Mofaz as alarmist. How can Mofaz look at current Israel budget deficit and see 40 billion shekel “missing”; while Netanyahu put out a message that all things are normal? That’s Israeli politics (especially during election times) at it’s finest!
Call me cynical or even a “conspiracy alarmist”, but with a central bank governor like Stanley Fischer and one of the most well run financial markets in the region, 40 billion shekels should not be going missing from the state budget. Even if you take a few large projects into account like the security fence at the Sinai border. The annual deficit should not have been such a surprise. Now Yair Lapid, , the finance minister is blamed for raising taxes, while the last government ministers keep on saying “I told you so…” – hinting on changes in the economy which the state was not ready to address for political reasons. But Israelis see the changes more as a phase in the state’s maturity. Economic down years come for many reasons. Today, we are much more dependent on exports and nearby political changes. While Syria and Iraq burn, Tel Aviv tans. While Egyptians and Turks protest Islamic fundamentalist leaders, Israelis complain (softly) about the price of cheese. Comparatively, Isralis are not only lucky, they are in great position. Thanks for Facebook, Twitter and the nightly news, Israelis also know how good it is here. So when you hear “middle east / Arab spring” bad news, keep Israel out of that category. Israelis certainly do.    

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