My client informed me that he wanted to purchase an apartment in Talbieh between Jabotinsky Street and King David Street. I mentioned to him that many apartments in this area are on land previously owned by the Greek Orthodox Church of Jerusalem (the church). I then explained that over 130,000 dunam (32,500 acres) of land in central Jerusalem neighborhoods—primarily in Rechavia and Talbieh—was owned by the church. Thousands of apartments are built on church land, as are many famous Jerusalem buildings, such as the Knesset, the Great Synagogue and the Israel Museum.
If that’s the case, asked my client, does one have to make rental payments to the church, and are there any other implications of buying on church land? I first explained that the lease has been prepaid by the state of Israel and therefore individual homeowners do not pay the church any rent. I then proceeded to give him the following overview:
The Ottoman (Turkish) Empire controlled Israel from 1516 until 1917. Towards the end of its reign, the Ottomans sold chunks of Jerusalem land to the church. In the 1920s, the church suffered major financial troubles and decided to raise funds by selling many of its Jerusalem properties. To sidestep church rules prohibiting the outright sale of real estate, in 1952 the church executed a 99-year lease with the state of Israel and received a large upfront payment in exchange for the right to use the land until 2051.
A few years ago, the church sold a large portion of their land to Jewish businessmen who have started to sell the land rights for each residential unit to the apartment owners. Currently, the price to purchase the land apportioned to each apartment is approximately 26% of the value of a similar freehold property (freehold definition: ownership of the apartment and the land) or property on land owned by the Israel Lands Authority. The percentage is linked to the lease expiration date, and increases as the expiration date becomes shorter.
Currently, apartments on church land with a lease expiration date of 2051 tend to sell for a 25%+ discount to similar properties on private or state-owned land. This discount correlates to the properties’ lesser value due to the 30-year usage window. As opposed to properties on private land being appreciating assets, church land properties with relatively short lease expirations are depreciating assets, and we expect that apartment prices will continue to fall as the lease expiration gets closer.
This unique situation presents an opportunity for some buyers who have limited funds yet want to live in central Jerusalem, as they can purchase a 30-year lease at a discount to market pricing for freehold properties. However, this is not a plain vanilla transaction—which is why we try to dissuade most of our clients from buying properties on church land—and therefore purchasers should carefully consider the many legal and financial issues before jumping into the deal.
Parenthetically, some people believe (hope?) that the Israeli government will intervene and settle this issue with the landowners on behalf of the apartment owners. Unfortunately, this is most probably an incorrect expectation, as we can point to similar situations where land leases expired, and the government did not intercede. Therefore, the owner of an apartment on church land would be best served, if they have the financial wherewithal, to purchase the land underneath the property immediately, as land prices will continue to rise due to (1) the lease expiration date becoming shorter and (2) the fact that land prices are calculated based on a continually rising real estate market.
Note: This article focused on the vast majority of church-owned land that is leased directly to the state of Israel. In the rare situations where the church leases the land directly to the apartment owners, the individual owners have less protection against the whims of the landowner, and many attorneys would strongly discourage these purchases.
Gedaliah Borvick is the founder of My Israel Home, a real estate agency focused on helping people from abroad buy homes in Israel. To sign up for his monthly market updates, contact him at [email protected]. Gedaliah will be running programs in New York and New Jersey the week of June 27. Please contact him for details or to schedule a private meeting.
