After years of waiting and of construction work that disrupted the lives of very many people, the longed-for moment has arrived, and the imminent opening of the Red Line of the Tel Aviv light rail system has the real estate industry wondering what the effect will be on property prices. Will they jump again, or has the improvement in quality of life that the light rail line offers already been priced in?
From conversations with industry professionals who have examined the question of property prices near mass transit systems, it emerges that, on the one hand, there is an expectation that prices will rise further for properties close to the Red Line in the Dan area following the opening of the line - as happened in the case of the Jerusalem light rail - but on the other hand there are those who believe that the rise in value this time round will be much more moderate.
Learning from the Jerusalem light rail
A survey by real estate appraiser Ohad Dannus for the Ministry of Transport examined the effect of the Jerusalem light rail system on adjacent properties. The survey was carried out on three occasions: December 2001, when the plan was published for deposit; March 2003, when the plan was adopted; and August 2011, when the light rail began operations.
"What we saw was that, as soon as the Jerusalem light rail opened, property prices shot up," Dannus says. "The smallest rise in value was 14%, and it reached 172% over a decade. This is the real rise in value, after discounting the general rise in property prices in Jerusalem, which, for four room apartments, was an average of 17% over the same period."
The method by which the change in the value of the assets near the Jerusalem light rail was examined was through capital gains tax reports for transactions in properties where there was more than one transaction. "Altogether, 193 transactions were examined, which means that the survey is not statistical, because there wasn't enough data, but these transactions do reflect and embody the advantages and disadvantages of being close to the light rail line and its stations," he added.
Dannus says that it is possible to conclude that a similar sharp rise in prices will happen close to the Red Line in the Dan area from the moment that it starts operating.
"The work we carried out on the effect of the light rail in Jerusalem shows that, as soon as the trains start running, the potential goes up and prices take off. It can be estimated that, along the Red Line that is now being opened, we shall see rises of 50% and up to 100% in the values of properties within a decade, beyond the general rise in prices. The main rise in prices will probably come once the line starts operating."
"Every public precinct that the light rail passes through is upgraded, such as Park Mesila in south Tel Aviv and Jabotinsky Street in Ramat Gan," Dannus adds.
"Wherever the light rail passes through, the public space has been upgraded dramatically. I have no doubt that later on properties close to the route will also be upgraded, and rights will be obtained because of the proximity to the mass transit system."
The light rail will create through arteries that didn't exist previously, and will bring the cities at a distance from central Tel Aviv dramatically closer, and the accessibility will lead to a rise in value as well.
"The rise can be expected to affect the more peripheral areas particularly, where the enhancement to value is extreme," Dannus explains, but adds, "You do also have to hedge this and take into account the market situation and interest rates. It's difficult to tell what will happen, and there are many elements that could affect the enhancement of the properties in the future."
Predicting property prices
Real estate appraiser Arieh Kamil, of Kamil Treshanski Refael Real Estate Services, whose firm carried out a study of the value of properties in the vicinity of the planned Tel Aviv Metro, found that the market had not yet priced in the effects of the plan, but that plan has yet to receive final approval. He expresses a more cautious stance than that of Dannus on the likelihood of a dramatic rise in property values along the Red Line route, and believes that current prices already take account of expectations of the opening of the route.
"We have been seeing the light rail trains on trial runs in the streets of the cities for six months, and current property values price in much of the expectation from the opening of the line. But of course, once it opens, and starts operating properly, a further rise in prices can be expected as a result of the accessibility and renewal.
As far as the comparison with the price rise in Jerusalem is concerned, this is a different period, and with current interest rates, it's hard for me to believe that we'll see such a significant rise in prices."
A view similar to that of Kamil's emerges from an international survey carried out as part of the consultancy services provided by Paz Economy and Engineering 1996 Ltd. to the Metro team in Israel. It found that property values rise gradually from the day that the project is announced until the new line opens. The survey was based on data from cities in which new metro lines were constructed.
Paz Economy and Engineering CEO and owner Daniella Paz explains that, according to the findings, property values within half a kilometer of a mass transit system rise by 20% more than values of properties in places not served by the system.
As soon as it is reported that a light rail line or metro line will pass through, values rise gradually, but the further away the opening date, the smaller the rise. Even after the line starts operating, values continue to rise, with the rise moderating as the market understands the transportation advantage.
Paz also believes that the price rise will be mainly in cities that the Red Line connects to Tel Aviv. "It can be presumed that the rise in value of residential properties will be strongest around the terminal stations in Bat Yam and Petah Tikva, as passengers start to feel the advantage of the shorter travel time to central Tel Aviv. I expect a significant rise in rents in the areas surrounding these stations once the line opens."