Monday, July 9, 2012

What is the cost of a sea view?

Of all the components of housing prices, the hardest one to gauge is view. The price of land on which a building stands is a given. Construction costs can also be quantified based on the quality of the interior finishing, and details of fixtures that are included. But evaluating the view is more complicated.

The value of the view from a given dwelling is subjective. Very few empirical studies on the value given to dwellings with an especially nice view have been conducted. There is one official study of this type in Israel, however, performed by the former chief government appraiser Yakov Odish in 2006. In that study, Odish found that the city in which a view has the largest impact on housing prices is Tel Aviv, particularly when it comes to seeing the Mediterranean Sea from the window. Odish found that apartments overlooking the sea can be worth 48% more than equivalent apartments without that view. This is still true today, although this differential in price has climbed markedly since 2006. An apartment with a sea view in Tel Aviv today can currently cost nearly twice as much as a home without that view.

Erez Cohen, former chairman the Israeli Real Estate Appraisers Association, examined all the real estate deals between November 2011 and March 2012 in the Ne'eman Towers, near the sea in northwestern Tel Aviv. He found that apartments facing the sea cost NIS 63,000 per square meter, while the ones facing away cost NIS 32,000 per square meter. But, the added value of a sea view prices differs from city to city. As with the value of the land itself, this depends largely on the distance from Tel Aviv. Thus, for example, in Ir Yamim, the new residential suburb of Netanya, apartments overlooking the sea will cost 30-50% more than those facing. Similar differentials are expected in new projects in Rishon Letzion. In new construction taking place in proximity to the marinas in Ashdod and Ashkelon, this view-dependent difference in apartment prices will not be higher than 20%.

Cohen gives a partly psychological explanation for these extreme differences between cities vis-a-vis values of apartments with a sea view. According to him, "a sea view reflects prestige, so that upscale neighborhoods, where apartments cost millions of shekels, are the ones in which correspondingly higher values are attributed to the view, leading to the extreme differences in housing prices. In lower-end neighborhoods it is more difficult to add much to the price based on the view. Residents there will attach less importance to it."

Read the rest at Haaretz

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