Housing Sector in East , a March 19th 2015 Market Opportunity Analysis

Transforming knowledge, Advancing Life Real Estate and Housing Sector Opportunity Assessment

Submitted to

Al-Quds Economic Forum and the Office of the Quartet

In the Framework of

East Jerusalem Market Assessment

Funded by Table of Content

Section Overview Page Section Overview Page 1 Market Analysis on the Housing Sector in East 4 1.6 Obstacle to Housing Development 34 Jerusalem 1.6.1 Planning 35 1.1 Demographics 5 1.6.2 Zoning 35 1.1.1 Population 6 1.6.3 Infrastructure 35 1.1.2 Population Movements 7 1.6.4 Land Parcel 36 1.2 Characteristics of the Current Housing Units 9 1.6.5 Land Registration 36 1.2.1 Housing Stock 10 1.6.6 Access to Finance 37 1.2.2 Housing Density 11 2 Stakeholder Analysis 38 1.23 Housing Size 12 2.1 Stakeholder in the Private Sector 40 1.3 Affordability 14 2.2 Stakeholders in the Governmental and Non 57 1.3.1 Housing Cost and Selling Price 15 Governmental Sector 1.3.2 Ownership 22 3 Value Chain Scheme of the Housing Sector in East 75 Jerusalem 1.3.3 Affordability 22 4 Case Studies 78 1.4 Housing Supply and Demand 25 5 Conclusions and Recommendation 87 1.4.1 Construction 26 6 Annexes 91 1.4.2 Housing Supply and Demand Market 28 Analysis 1.5 Profit Potential in the Housing Sector 30

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 3 the Quartet. Market Analysis on the Housing Sector in Demographics

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Population

“ in East Jerusalem represent 9.1% of all Palestinians living in the occupied . 64% of the city’s Palestinian population is under the age of 30. Jerusalem has an annual growth rate of 1.84% which is well below the rate of 2.66% per annum”

Population The population in Jerusalem governorate constitutes 9.1% of the total population of and 14.9% of the population in the West Bank. Whereas, the According to the Palestinian Bureau of Statistics (PCBS), the total population of percentage of persons aged below 15 years in 2013 was 35.2% of the total in Jerusalem governorate was estimated at 404,165 persons in 2013, of population, while those aged 60 years and above made up 6.7% of the total whom 251,043 (62%) were in Area J1 and 153,122 were in Area J2. population in Jerusalem governorate. This contradicts the Jerusalem Institute for Israeli Studies (JIIS), which estimates The reported compound annual growth rate of Arabs residing in Jerusalem was the Arab population in Jerusalem at 300,200 persons. This can be seen in the chart 3% from 2000 until 2012, against the 1% of . The population density was below on the right. It is worth to mention that an accurate figure about the total 1,182 (capita/Km2) by the end of 2013. population is nearly impossible to find due to the dual lifestyle of Jerusalemites (East J. & WB). Figure 1 The table below shows the neighborhood compounding East Jerusalem taking into account locality J1 and J2. CAGR: 3% Table 1: Palestinian Neighborhood in J1 and J2 J1 J2

• • Jabal Al – Mukabbir • Rafat • • • Ras Al-Amud • Mikhmas • Beit Hanina Al Balad • Shu’fat Refugees Camp • As–Sawahira Al– • Qalandiya Camp • Kharayib Umm al • Wadi Al – Joz Gharbiya • Qalandiya • Shu’fat • • • • Bab Al-Sahira • • Jana • • Al’ • Ath–Thuri • Al Judaeira • Anata • Assuwwana • Sharafat • Ar Ram & Dahiyat Al • Al Ka’abina • Jerusalem “Al - Quds” • Sur Bahir Bareed • A Za’ayyem • At –Tur • Kufr A’qab • Beit’Anan • Al ‘Eizariya • Ash-Shayyah • Um Tuba • • • • Arab Al Jahalin • • As Sawahira ash • Al Qubeiba Sharqiya • Lahim • Ash Sheik Sa’d • Biddu • Jaba’ • An

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 6 the Quartet. Population Movements

“Population Movements are mainly due to the availability of Figure 2: Population Movement more affordable houses either for rent or sale on one hand, and the restriction to build within East Jerusalem on the other”

Population Movements The population movements to outside of the municipal borders, represents one of the major key demand drivers. These migration movements are presented since the 80s, and are mainly due to the Israeli policies. In addition to this, there are two other major factors boosting immigration to Ar Ram, Hizma and Abu Dis (which represent principal final destinations of local movements): • Lower Property Prices • Restriction to build within East Jerusalem. Nevertheless, since the second half of the 90s this flow reversed as result of the enactment of the “Centre of Life Policy”, whereby Jerusalemites were required to prove that they live within the borders of Jerusalem Municipality in order to preserve their residency permits. This trend accelerated with the construction of Separation Wall in 2003 as Jerusalemites feared the loss of their ID and consequently, their access to the city. This event not only impacted the actual population growth within municipal borders but derived into a trend of unpermitted house construction. As consequence, the Israeli Authorities developed and deployed harder restrictions, tighter control mechanisms and stronger punitive measures. The map on the right shows the internal migration from 2010-2012, represented by persons by neighborhood. JIIS migration data shows a clear movement from the central neighborhoods to the periphery, with neighborhoods beyond the wall have the highest net migration. These movements are explained in depth on the next slide. Source: IPCC 2013, Data From JIIS, Jerusalem Statistical Yearbooks 2012, 2013, Table V/15

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 7 the Quartet. Population Movements

“Population movement beyond the wall is encouraged by the accessibility to affordable houses within Municipal boundaries while migration beyond the city boundaries is a consequence of the dual lifestyle”

Migration beyond the wall and city are the two major population movements Population Movement beyond the City Boundaries worth considering when discussing Real Estate and Housing.

Population Movement beyond the Wall Households are moving to localities beyond the Jerusalem Governorate. This migration is a direct result of the dual lifestyle that most Jerusalemites live. The On the West Bank side of the Separation Wall, little to no enforcement of main destination is and in the near future, will probably also be considered. planning laws by the Municipality has enabled a proliferation of unpermitted construction and with it attracted a large migration of families seeking an Since these movements are not official, they are not reported by the ICBS or the affordable house within Municipal Boundaries. PCBS. Hence, they cannot be accurately estimated. One of the main reasons why The total population beyond the wall remains inaccurate to date. Based on it is hard to estimate the size of these migration flows is that Jerusalemites move OCHA’s report (East Jerusalem Key Humanitarian Concerns, update Aug 2014), into Ramallah while registering at a family or household alibi in Jerusalem. Tens of thousands of Palestinian residents of East Jerusalem are physically The Government of , through the ministry of Interior, monitors households separated from the urban center by the Barrier. They must cross crowded and if it was discovered that a family lives outside the city limits, their residency checkpoints to access health, education and other services to which they are will be revoked. entitled as residents of Jerusalem. Over the years, this kind of migration has increased due to poor living conditions More specifically, in the OCHA’s report (East Jerusalem Key Humanitarian (high densities and lack of public services) inside the neighborhoods beyond the Concerns, update Dec 2012), it was estimated a total population of 55,000. wall. Nevertheless, poorer families that cannot respond to the increase of rents in Moreover, based on data published by the JIIS, these population movements Ramallah are forced to move back to neighborhoods within city limits. If housing represent 30% inter and intra city migration from 2010 to 2012. rents and selling prices in Ramallah continue to rise/fall, these trends are expected to be reinforced. As stated by NGOs working in policy research and urban planning, zoning and development, the growth in these neighborhoods is not sustainable. Moreover, In conclusion, it can be said that if it were not for the risk of residency revocation, the extent of migration would be greater. there is a latent threat since there is a possibility that Israel Government will hand over the control. In this scenario, residents will be at risk of losing residency permits. This could trigger the return of thousands of households back inside the city wall’s limits.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 8 the Quartet.

Characteristics of the Current Housing Units

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Housing Stock

“Dwelling in Arab neighborhoods increased by 4.2 percentage points above the growth observed in Jewish neighborhoods in the period between 2012 and 2013”

Table 2: Dwelling in J1 2011-2013 Housing Stock While the Arab population Area J1 Dwelling units represents 37% of Jerusalem 2011 2012 2013 As stated in the “JIIS’s fact and trends: 2014”, in the end 2013, Jerusalem had a inhabitants, the proportion of Northern Neighborhoods 15,105 15,733 16,461 total of 208,770 dwellings which represents a slight increase of 2.2% since 2012. households is considerably lower Out of them: Beit Hanina 6,193 6,762 7,192 (24%. This is mainly due to the fact Shu'afat 3,744 3,751 3,829 • 158,620 apartments (76%) are located in Jewish neighborhoods (1.2% increase that Arab households typically Kafr'Aqab, 3,882 3,885 4,044 since 2012) include a greater number of persons New Anata 1,286 1,335 1,396 (JIIS, 2014). • 50,143 apartments (24%) are in Arab neighborhoods (5.4% increase since 2012 Central Neighborhoods 22,101 21,990 23,750 and with a compound Annual Growth rate of 4% between 2001-2013). The Northern and Southern (Jews Quarter 5,266 5,321 5,578 Not Incl.) neighborhoods are experiencing a faster growth caused by the Issawiyya 1,790 1,800 1,840 Figure 3: Dwelling in East Jerusalem increasing demand of areas in the At-Tur + As Sawana 4,075 3,676 4,231 outskirts of East Jerusalem which Wadi al Joz + Sheikh Northern Neighbourhoods Central Neighbourhoods Southern Neighbourhoods 3,014 2,039 2,050 have better public services, Jarrah CAGR: 3.7% 23,750 22,101 21,990 infrastructure, and living conditions. Abu Tur 1,929 1,929 1,946 CAGR: 4.4% The neighborhoods that Silwan 2,779 2,832 2,887 Ras al Amud + Wadi 15,733 16,461 experimented a greater growth 3,248 3,413 4,245 15,105 Qadum CAGR: 4.3% between 2012 -2013 are: At-Tur + Bab A-Zahara, As Sawana (15%), and Ras al Amud NA 980 973 9,932 Masudiya 9,123 9,835 and Wadi Qadum (24%). Southern Neighborhoods 9,123 9,835 9,932 Jabal Mukabber + As It is worth highlighting that the 4,257 4,072 3,903 neighborhood of Beit Hanina is the Sawahra Sur Bahir + Umm 2,463 3,294 3,390 largest with 7,000 housing units. Tuba Housing Units 2011 Housing Units 2012 Housing Units 2013 Beit Safafa + Sharafat 2,403 2,469 2,639 Total 46,329 47, 558 50,143 Source: JIIS, Jerusalem Statistical Yearbooks 2012, 2013, 2014

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 10 the Quartet. Housing Density

“In 2013, the average number of rooms per household was 3.7. 54.7% of households exceeded five members per household while 25.1% consisted of 7 or more members”

Figure 4 Housing Density According to JIISs’s “Jerusalem: trends and facts 2014”, there were 53,300 Arab household in 2012 with an average size of 5.8 people. It is noteworthy that the JIIS does not take into consideration that some of the growth is likely a result of the increased usage of “alibi households”, and therefore indicative of outward migration from the city. Furthermore, 25% of Jewish households named one person, compared to only 4% of Arab households. Households of six or more persons constituted 52% of the total number of Arab households compared to 16% of the total number of Jewish households. This can be seen in the table on the right. Diving into the situational analysis of dwelling in East Jerusalem, the PCBS reports that in 2013, the average number of rooms was 3.7. 54.7% of households exceeded five members while 25.1% consisted of seven members or more. On average, the housing density ranges from 1.5 to 1.9 persons per room (depending on the source (PCBS or ICBS)) which represents a higher number than all Palestinian cities in Israel and Palestine.

Source: JIIS, Jerusalem: Trends and Facts, 2014

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 11 the Quartet. Apartment Size

“Neighborhoods with the largest average apartment Figure 5 size are Beit Hanina, and Beit Safafa”

Housing Size Following the description of the housing market in East Jerusalem provided by the JIIS (Fact and Trends, 2014), the average area of an apartment in Jerusalem was 80 square meters (m2). In neighborhoods with an Arab majority, the average is 76 m2. The smallest average apartment size was found in the Muslim Quarter (45 m2), the (45 m2), the (61 m2) and Silwan (61 m2). Within East Jerusalem, small apartments (60 m2 and below) are most common in the old city (representing a percentage ranging from 71% - 100% of existing units) followed by: • Silwan ( in the range of 41% - 70% of existing units); • Shuafat, Isawiyya, At-Tur, Sheik Jarrah, Wadi Al Joz, , Sawahira, Jabal Mukabar, Sur Bahir, Uma Tuba, Beit Safafa and Sharafat (in the range of 21% -40% of the existing units) and • Beith Haninia, and Atarot (in the range of 0%-20% of existing units). Regarding the estimation of large apartments (size 120 m2 and above) in Jerusalem, as censored in 2012 and after deep studying of the status of housing in East Jerusalem, it can be observed that large size apartments are most common in Beit Hanina and Shuafat, Abu Tor, At-Tur and within Old City ranging from 6% to 10% from the total existing housing units. Less than 5% can be found in Atarot, Silwan , Sheik Jarrah, Sawahira, Jabal Al Mukkaber, Sur Bahir, Bet Zafafa and Sharafat. Source: JIIS, Jerusalem: Trends and Facts, 2013

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 12 the Quartet. Apartment Size

Figure 6 “Neighborhoods with the largest average apartment size are Beit Hanina (97 m2), Kafr 'Akb (91 m2), New Anata (88 m2), and Beit Safafa (87 m2)”

120 Figure 7: Average Area of Dwelling in m2 per Neighborhood

100 97 91 88 85 87 83 82 80 80 80 75 76 77 71

61 61 60

45 45 40

20

Source: JIIS, Jerusalem: Trends and Facts, 2014 Source: JIIS, Jerusalem: Trends and Facts, 2014

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 13 the Quartet. Affordability

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Affordability

“The primary cause of high selling prices is the shortage of land available for construction. It typically ranges from 30%-40% from the overall cost of dwelling”

Housing Cost and Selling Price Furthermore, it can also be observed from the evolution of prices in the past 14 Over the last years and as result of housing shortage, apartment prices have years which cost of building (understood as cost of labor and materials) does not continuously been rising in Jerusalem. dramatically affect the housing prices. In fact, the rise in land prices is the main critical factor. And while this is a global phenomenon in Israel, in East Jerusalem In retrospect, the evolution of housing prices indicates that nominal prices (prices it plays the major role. not adjusted for changes in the Consumer Price Index (CPI)) decline from the year 2000 to beginning of 2008. During this period, the change in the housing The results of the survey and a series of structured interviews conducted among price trend experienced a continuous ascent that lasted up till today. key real estate developers in East Jerusalem suggest that the average land cost in US Dollar per square meter is US$ 742.5 in neighborhoods with higher demand. It can range from Figure 8 • US$ 300 – 500 per square meter in neighborhoods with low demand such as those located along the city limits (Issawiya, A-Tur, and Ras al Amud among others). • US$ 500-1,000 in neighborhoods such as Beith Hanina, Shuafat, Sheik Jarrah, Wadi Joz and Beith Safafa and Sharafat). The cost of land is equally distributed among the available units. It typically ranges from 30%-40% of the overall cost of dwelling. Therefore, any increase in the value of land, it would drastically affect the selling price. In conclusion, it can be said that the increase of cost of land is attributed to : • Shortage of land for construction • Private ownership of lands • Returns of Jerusalemites, after the completion of the Separation Wall in 2006. • Political Unrest Source: State of Nation Report, 2014 TAUB Center for Social Policy Studies in Israel

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 15 the Quartet. Affordability

“The second cause for high selling prices is represented in difficulties in obtaining building permits. It typically ranges from 12% - 14% from the overall cost of dwelling”

Table 3 For instance, assuming a land area of 1 dunum (1,000m2) with an average of 742 USD/m2 and a building ratio of 75%, Developers would have an available area of 750m2 and would be able to build up to 5 apartments of 150m2; # Building Permits Cost Breakdown USD/m2 or, up to 7 apartments of 100m2; or up to 10 apartments of 76m2. 1 Registration 9

The cost of land per unit varies according to the size. Hence, for apartments of 150m2, the proportion of the cost 2 Water Fees 18 would be about 148,000 US Dollars; for dwelling of 100m2 would be approximately 108,000 US Dollars; and for units of 76m2, about 75,000 US Dollars. 3 Water Fees and services 3

In addition to the above, the cost of municipality building permits is considered the second reason for high selling 4 Sewage 11 prices. This fluctuates between 12% and 14% for each housing unit. The table on the left provides a detailed structure of the building permits. It is estimated to amount to 336 USD/m2. And hence, for a 150m2 apartment, the building 5 Land fees for water usages 3 permit would cost about 50,000 US Dollars; for a dwelling of 100m2 about 30,000 US Dollars and for small 6 Land fees for sewage usages 8 apartments (76m2), it would cost about 25,000 US Dollars. 7 General services 5 Together, the cost of land and building permits, represent up to 49%-59% of the total housing cost. 8 Antiques 4 In comparison to the above, the cost of building is estimated to be about US Dollar 850 per square meter. It could fetch up to 127,000 US Dollars for apartments of 150m2; 85,000 US Dollars for dwelling sized 100m2; and, 65,000 9 Excavation 8 US Dollars for units of 76m2. It represents 30% - 45% of the total housing cost. 10 Electricity 1 In conclusion, since the cost of building index experimented a stable growth in the last 14 years and it appears there is no correlation between this and the Housing Price Index, the trigger for the increase in the housing selling price is, 11 Waste and Garbage 5 logically, the cost of land. Two studies ((Zussman, 2013) and Eckstein et al. (2012)) cited by the TAUB Center for 12 Concrete testing 8 Social Policy Studies in Israel demonstrate that the primary cause of the housing price increase is the shortage of land for construction, rather than the impact of any other inputs; and, that commercial real estate prices have not increased 13 Taxes 211 alongside residential prices, as commercial real estate has not faced similar permit constraints to residential real 14 Roads 43 estate. Total 336

Source: Al Quds holding

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 16 the Quartet. Affordability

Assumption Box Table 4

Building permits for non Construction according to International Infrastructure (architectural retaining 350 ILS/USD 3.8 Land Area in m2 1,000 Av. USD/m2 Land 742 100 collective development 336 and Municipal Standard (USD/m2 ) walls, electricity, gas) - USD/m2

Eng. Supervision over Developing a joint building layout Land Purchasing taxes in 2% Av. Apartment Size m2 (A) 150 (over amount required 2% Building Ratio 75% Land Cost plan (Collective Development) - 13 Collective Project 742,000 for implementation) USD/m2

Building inspector Land Cost attribute to Land Purchasing taxes in Building Area in 5% Av. Apartment Size m2 (B) 100 (over amount required 2% 750 building area in Project Accident Insurance USD/m2 7 Non-Collective Project m2 989 for implementation) USD/m2

Administrative and Legal Fees for transferring Financial Mgt (over ownership, signing 2% Av. Apartment Size m2 (C) 76 5% Units to Build (A) 5 land Cost over Unit A Contingency on Cost - USD/m2 33 amount required for 148,400 contracts, registration implementation)

Accounting and Taxes Adjusted Land Zoning and Increasing House Finishing (USD/m2 ) 500 Profit Margin (%) 45 (over amount required 3% Units to Build (B) 8 land Cost over Unit B 20 98,933 building ratio - USD/m2 for implementation)

Units to Build (C) 10 land Cost over Unit C 75,189

As a result of the structured interviews (combined with survey techniques) among The model adopted also suggested that developers who have built without third key players of East Jerusalem housing sector, it was possible to build an parties (contractors and/or construction companies), have significant savings and assumption box (displayed above) gathering the “Key Cost Indicators” incurred therefore, have better profit margins. by property developers. Table 5 Total Amount Required for Implementation It is worth mentioning that this calculation refers to a Non-Collective Housing Aprt. 150m2 Aprt. 100m2 Aprt. 76m2 Development scenario (collective development indicates groups of households USD USD USD Individual / Property Developers (without third built on a single site together). The Union for Jerusalem Housing Assembly 357,696 238,464 181,233 suggests that collective development benefit for better cost in terms of land (400 parties) USD/m2), and building permits (233 USD/m2). Individuals / Property Developers (with thirds parties) 400,619 267,080 204,115 Savings in Administration Cost 42,924 28,616 21,748

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 17 the Quartet. Affordability

“The cost price of the upcoming supply of new multi-family residential, which has an average size of 110m2, is expected to fetch up between 260,000 – 290,000 US Dollar per unit”

Table 6 Table 7 Cost Breakdown for building and transferring Distribution housing unit to buyers over the Total Cost

Aprt. 150m2 Aprt. 100m2 Aprt. 76m2 Developers with Developers with Third Parties Non-Third Parties USD USD USD

Citizen Contribution in Purchasing the Land 148,400 98,933 75,189 Citizen Contribution in Purchasing the Land 37.0% 41.5% Purchasing Taxes in Non-Collective Projects 7,420 4,947 3,759 Purchasing Taxes in Non-Collective Projects 1.9% 2.1% Legal Fees for transferring Ownership, signing contracts, 2,968 1,979 1,504 Legal Fees for transferring Ownership, signing contracts, registration a registration a relevant authorities relevant authorities 0.7% 0.8% Permits including architectural designs and all relevant fees Permits including architectural designs and all relevant fees (water, 50,408 33,605 25,540 (water, sewage, roads, improvements, etc) sewage, roads, improvements, etc) 12.6% 14.1% Infrastructure including architectural retaining walls, Infrastructure including architectural retaining walls, electricity 15,000 10,000 7,600 3.7% 4.2% electricity company, gas pipes, etc company, gas pipes, etc Construction according to international standards and safety Construction according to international standards and safety 52,500 35,000 26,600 13.1% 14.7% requirements imposed by the Municipality requirements imposed by the Municipality House Finishing 75,000 50,000 38,000 House Finishing 18.7% 21.0% Project Accident Insurance 1,000 667 507 Project Accident Insurance 0.2% 0.3% Contingency on Cost 5,000 3,333 2,533 Contingency on Cost 1.2% 1.4% Total Amount required for Implementation 357,696 238,464 181,233 Administration Cost for Implementing Company 10.7% - Administration Cost for Implementing Company (Third Party 42,924 28,616 21,748 constructor) • The Price Cost of an apartment in m2 can range from 2,385 USD/m2 to 2,670 Eng. Supervision 7,154 4,769 3,625 USD/m2. 3,625 Building inspector 7,154 4,769 • The Land Cost represents the major proportion of the cost, followed by the cost

of building (Construction according to international and Municipal standards Administrative and Financial Mgt 17,885 11,923 9,062 and House Finishing). The Cost of Building Permits rank the third.

Accounting and Taxes 10,731 7,154 5,437 • It is worth mentioning that this assumption and calculation have been made as an indication of market price, and thus, it can vary from one project to another. Total Cost of Each Housing Unit 400,619 267,080 204,115

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 18 the Quartet. Affordability

“Today, the average price of privately owned dwelling in the city of Jerusalem (West and East) is US Dollar 385,940”

In retrospect, the trend of housing prices has had a steady growth with a CAGR of In subsequent years, a lower price growth was observed, and while the value of 7.3% over the past ten years. Price developments with respect to housing between apartments with 1.5-2 rooms is expected to decrease, the price of those with 2.5-3 2.5-3 rooms can be considered more encouraging for property developers, given rooms will increase slowly. Today, the average price of privately owned dwelling the differential of 0.7 and 1.5 percentage points, compared to the value of in Jerusalem (West and East) is US Dollar 385,940. dwellings between 1.5-2 and 3-4.5 rooms respectively Figure 10 As mentioned above, the housing prices began to increase in 2008 but it was not Annual Percentage change of Privately Owned Dwelling in until 2010 when an outstanding leap of 17.1% was observed over the previous Jerusalem 2004-2013 year. 20.0% 1.5-2 Rooms The chart below provides a useful image of the increase of the dwelling price in 15.0% 2.5-3 Rooms Thousands of US Dollar per number of rooms. 10.0% Figure 9 3.5-4 Rooms 5.0% Average Price of Privately Owned Dwelling in Jerusalem 0.0% 2003-2013 (Thousands USD) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 600.0 CAGR:7.3% -5.0% 500.0 Figure 11 400.0 Average Prices of Privately Owned Dwellings in Jerusalem 300.0 (Thousand USD), 2013 $474.94 200.0 $382.14 $300.75 100.0 .0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1.5-2 Rooms 2.5-3 Rooms 3.5-4 Rooms 1.5-2 Rooms 2.5-3 Rooms 3.5-4 Rooms

Source: JIIS, Table X/11 - Average Prices of Privately Owned Dwellings in Jerusalem , Tel Aviv - Yafo and Haifa, by Number of Source: JIIS, Table X/11 - Average Prices of Privately Owned Dwellings in Jerusalem , Tel Aviv - Yafo and Haifa, by Number of Rooms, 1988-2013 Rooms, 1988-2013

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 19 the Quartet. Affordability

Figure 12 “Observing the average cost of small apartments in East Jerusalem in comparison to the average price they are sold at, a profit margin of 45% is roughly estimated”

Another aspect that must be considered is the large price difference that exists between neighborhoods on either side of the Wall of Apartheid.

• Beyond the wall (such as Kafr ‘Aqab and ‘Anata have affordable prices of Average Prices of Privately Owned between US$50-120,000). Dwellings in USD • Within the wall, prices can be summarized into three location-based ranges: $400,000 o Central (such as Sheikh Jarrah and Wadi Joz where average prices range $350,000 between US$450-500 thousand) $300,000 o Northern (such as Beit Hanina and Shu’fat and the price ranges between $250,000 US$300-450 thousand) $200,000 o Southern (such as Jabal Mukabber and Sur Bahir with a price range between $150,000 US$200- 300 thousand) $100,000 An observation made over the prices in the localities beyond the wall and within $50,000 Jerusalem limits was that the housing units can cost 90% cheaper. This is possible due to the following: A lower land Cost; A high density construction; and, $- Municipal license to build (permits) is not required. The chart on the right shows the results of the analysis of data obtained from the data collection process. Based on average apartment size per neighborhood, the average selling price is around 260,000 US Dollar while the average cost is 180,000 US Dollar. This indicates a profit margin of 45%. These figures are supported by IPCC estimates, 2013. It is worth mentioning that these percentages can vary extremely from one neighborhood to the other. In the next slide, the cost and selling price of new constructions of apartments sized 100m2 and 76m2 is shown

Source: Dimensions Consulting Analysis and IPCC

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 20 the Quartet. Affordability

“Builders are selling new dwellings of 100m2 at an average price of 350,000 US Dollar”

Table 8 Table 9 Non-Collective Development Figures Non-Collective Development Figures Breakdown Cost for building and transferring housing unit of Breakdown Cost for building and transferring housing unit of 100m2 to buyers Cost Price in USD Selling Price in USD 76m2 to buyers Cost Price in USD Selling Price in USD Citizen Contribution in Purchasing the Land 98,933 143,453 Citizen Contribution in Purchasing the Land 75,189 109,025 Purchasing Taxes in Collective Projects 4,947 7,173 Purchasing Taxes in Collective Projects 3,759 5,451 Legal Fees for transferring Ownership, signing contracts, 1,979 2,869 Legal Fees for transferring Ownership, signing contracts, registration a relevant authorities 1,504 2,180 registration a relevant authorities Permits including architectural designs and all relevant fees Permits including architectural designs and all relevant fees 33,605 48,728 25,540 37,033 (water, sewage, roads, improvements, etc) (water, sewage, roads, improvements, etc) Infrastructure including architectural retaining walls, electricity Infrastructure including architectural retaining walls, electricity 7,600 11,020 10,000 14,500 company, gas pipes, etc company, gas pipes, etc Construction according to international standards and safety 26,600 38,570 Construction according to international standards and safety requirements imposed by the Municipality 35,000 50,750 requirements imposed by the Municipality House Finishing 38,000 55,100 House Finishing 50,000 72,500 Project Accident Insurance 507 735 Project Accident Insurance 667 967 Contingency on Cost 3,333 4,833 Contingency on Cost 2,533 3,673 Total Amount required for Implementation 238,464 345,773 Total Amount required for Implementation 181,233 262,787

Administration Cost for Implementing Company (Third Party Administration Cost for Implementing Company (Third Party 28,616 41,493 21,748 31,534 constructor) constructor)

Eng. Supervision 4,769 6,915 Eng. Supervision 3,625 5,256

Building inspector 4,769 6,915 Building inspector 3,625 5,256

Administrative and Financial Mgt 11,923 17,289 Administrative and Financial Mgt 9,062 13,139

Accounting and Taxes 7,154 10,373 Accounting and Taxes 5,437 7,884

Total Cost of Each Housing Unit 267,080 387,265 Total Cost of Each Housing Unit 202,980 294,322

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 21 the Quartet. Affordability

“By international standards, this price is unaffordable in comparison to average salaries of Palestinians in East Jerusalem”

Ownership Affordability Nonetheless, based on ICBS data, the percentage of ownership in East Jerusalem By international standards, affordability of housing is mainly defined by income has remained stable along the years. Nowadays, this percentage has increased and living conditions. Figure 14 severely where 83.9% of Palestinians own housing units against 16.1% who rent housing units (PCBS, 2014). The Foundations for Affordable Housing Figure 13

Average Selling Price of Housing Units in Thousand USD

400.0 60% 64% 350.0 % ownership 52% 47% 44% 300.0

250.0 200.0

150.0

100.0

50.0 Most agencies and experts agree that housing is financially affordable if it does .0 not absorb more than 30% of household income. Furthermore, international 2007 2008 2009 2010 2011 benchmark states that the lower the income, the higher the proportion of income It is worth mentioning that these exorbitant rates of housing prices could also be spent on housing. considered a positive socioeconomic factor which enable households to Therefore, in East Jerusalem, where the Jerusalemites’ average income is $1,722 accumulate assets while also fostering their community involvement (TAUB, (IPCC, 2013) and housing prices are above US Dollar 300,000, it is estimated that Andrews and Sanchez (2011)). the average percentage of income spent on housing could reach up to 59%.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 22 the Quartet. Affordability

“ICBS data suggests that the housing prices grew by 19.2% between 2007- 2011 while in the same period, incomes grew by 12.3% only”

In conclusion, these prices are unaffordable in comparison to average salaries. Furthermore, addressing the affordable housing gap will likely take on increasing This result is expected as during the period between 2007 to 2012, the average urgency as the number of affected households grows and the negative spillover wage in East Jerusalem grew at a much lower rate than the average housing price. effects multiply. In addition to the above, not only should affordable housing be inexpensive but A market-based approach that creates value while reducing housing costs was all housing, regardless of cost, should be: developed by McKinsey & Company in 2014 with the aim of addressing the • In good condition (no peeling paint and broken walls, electrical and plumbing global affordable housing challenges. work, no broken glass windows, which open and close well; railings and stairs The proposed solution is one of the ascending goals, similar to Maslow’s solid; maintenance; and, clean hallways among others). hierarchy of needs, with a four-tiered plan targeted towards households earning • Big enough for the people who live there. 80% or less of the median income for any given region. It sets its foundation on the following: • Free of hazardous materials. • Securing land for affordable housing at the right location. • Safe. • Developing and building housing at lower cost • Suitable for residents, especially the elderly and people with disabilities. • Operating and maintaining properties more efficiently. • In appropriate areas (affordable housing, should not be automatically built in • less desirable areas of the city or community). Improving access to financing for home, purchases, development, and rental assistance. • Reasonably close to shopping centers, public transportation, recreation and social services and health. An important social impact worth highlighting in regards of Jerusalemites’ welfare is that families with no decent houses have poorer health outcomes; children do less well in school and tend to drop out earlier; and unemployment and under-employment rates are higher.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 23 the Quartet. Affordability

Figure 15 “The model relies on community engagement, gathering funding, appropriate delivery of housing models and creation of governmental infrastructure to sustain housing”

Although this model in its entirety may not be applicable to East Jerusalem due to economic and political constraints; the maturity of the private sector; and, the absence of an effective credit system for Palestinians, this model produces a set of strategic thinking and innovative solutions and its components can be articulated based on the operating context among property developers. In regards to the two major obstacles for the housing sector in East Jerusalem (shortage of land and access to finance), it can be read from the McKinsey’s model, the following: Unlocking land supply: Government land could be released for development or sold to buy land for affordable housing. And private land can be brought forward for development through incentives such as density bonuses—increasing the permitted floor space on a plot of land and therefore, its value. In return, the developer must provide land for affordable units Lowering financing costs for buyers and developers: Improvements in underwriting would help banks safely make more housing loans to lower- income borrowers; contractual savings programs can help such buyers accumulate down payments and therefore finance purchases with smaller and less risky loans. Such programs can also provide capital for low- interest mortgages to savers, and governments could help cut the financing costs of developers by making affordable housing projects that are less risky—for instance, by providing a guarantee of finished unites to Source: McKinsey & Company buyer or tenants.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 24 the Quartet. Housing Supply and Demand

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Housing Supply and Demand

“Many critics maintain that the Israeli government is promoting Jewish majority in the city. Nevertheless, East Jerusalem has witnessed considerable urban development over the years”

Construction In 2013, 2,713 dwellings were sold in Jerusalem which is 74% greater than the As stated in the JIIS’s Fact and Trends: 2014 report, in 2013, construction in number in 2012. The percentage of sold units is only slightly superior (only 4% Jerusalem city was initiated on 3,442 housing units (significantly higher than the difference) in relation to the overall new dwelling available in Jerusalem. The number in 2012 (2,470) and 2011 (2,360)), while 2,430 residential units were overall supply of new dwellings in Jerusalem grew from 7,311 in 2012 to 9,885 completed (38% more than the previous year). residential units. The chart below shows a comparison between new dwellings sold (in which Furthermore, while the number of homes increased in Jerusalem as a whole, in East compound annual growth reached up to 17.2%) and new dwellings for sale at the Jerusalem, the trend is reversed. The housing supply has continued to fall far below end of the period ( in which compound annual growth was 41.6%). the level required to meet either demand or need. Studies presented by the IPCC suggest that between 2001-2010, there was a shortfall of over 3,800 units. Figure 15 The supply of housing units in East Jerusalem takes on a political and cultural 14,000 CAGR: 41.6% nuance due to the Israeli Settlements Policy. Between 2010-2013, the number of 12,000 building permits in Palestinian Neighborhoods reached 1,449 while for the settlements neighborhoods, it reached up to 2,669 permits in the same period 10,000 (Foundation for Middle East Peace, Bimonthly Report Mar-Apr 2014). This 8,000 indicates that the annual average of permits issued for Palestinian neighborhoods is CAGR: 17.2% 6,000 “362” .

4,000 Many critics maintain that the Israeli government is promoting Jewish majority in the city. In fact, the Israeli “Master Plan” mission statement states that “it is an 2,000 inclusive Plan aiming to develop the city of Jerusalem as a capital of Israel and an Israeli Metropolitan Center, preserving the image of the city, and the standard of 2005 2006 2007 2008 2009 2010 2011 2012 2013 living of all its residents”. Nevertheless, despite land and development rights controversy, East Jerusalem has witnessed considerable urban development over the New dwellings for sale at the end of the period in Jerusalem years. To date, and since 1995, urban planning of Jerusalem envisions 95,000 New dwellings sold during the period in Jerusalem residential units by 2020. However, there is another updated version of Jerusalem

Source: JISS: Trend and Facts 2014 Master Plan 2000 that is drafted but not yet approved.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 26 the Quartet. Housing Supply and Demand

Figure 16

Figure 17

2001-2004 – 440 building permits were issued in East 2005-2009 – 222 building Jerusalem permits were issued in East (Palestinian) Jerusalem (Palestinian)

Source: Foundation for Middle East Peace, Bimonthly Report Mar-Apr 2014, Map: © Jan de Jong Source: Chat from Foundation for Middle East Peace, Bimonthly Report Mar-Apr 2014.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 27 the Quartet. Housing Supply and Demand

“An additional 2,590 dunums of new housing areas are expected to be added to East Jerusalem in response to the Palestinian population growth”

In the master plan 2000, it was estimated that the population in East Jerusalem The residential units to be developed to respond to the need of the Jerusalemites’ would grow by an additional 92,000 persons to reach 380,000 inhabitants as a households is calculated by comparing trends of housing unit occupied and result of the natural population growth and Jerusalemites migration back to the households, as follows: neighborhoods within the Separation Wall. And consequently, an additional of Housing Units 2,590 dunums of new housing areas are expected to be added to East Jerusalem. While in 2013 there were 5.4% more residential units than the previous year in In addition to supply being limited, not all the built housing units are legal ((at East Jerusalem, considering the uncertainty of residential growth, the annual least 302 structures have been demolished and more than 665 people were average growth rate of Jerusalem as a whole city which is 2.2% will be applied forcibly displaced in East Jerusalem between the years 2011 – 2014 (OCHA and 2013 figures will be assumed for 2014. 2014). In retrospect, the number of units permitted for construction from 2001 to Table 10 2010 were only 3,823 representing just 30% of new construction. 2012 2013 The Jerusalem 2000 Outline Plan estimated the presence of 15,000 unpermitted Housing Units in J1 47,558 50,143 units at the time of its writing in the early 2000s. IPCC estimates that unpermitted Av. Annual Growth in City of Jerusalem (West and East) (%) 2.2 housing must now total somewhere between 20,000 - 25,000 units, or 42-52% of housing stock in East Jerusalem. 2014 2015 2016 2017 2018 2019 2020 The situation of unpermitted housing has been aggravated since the construction Estimated Housing Unit 50,143 51,246 52,374 53,526 54,703 55,907 57,137 of the Separation Wall as the Israeli Authorities have stopped all enforcement of building laws in areas beyond the wall. This has greatly increased the supply of Households housing in these areas. Municipality data shows that between 2006-10 Kafr ‘Aqab The total population of East Jerusalem (J1), as estimated by the PCBS 2014, alone accounted for 20% of residential construction in East Jerusalem. reached 251,043 and grow at an average annual rate of 3%. Additionally, the Housing Supply and Demand Market Analysis average household is expected to be 4.5 (PCBS 3.7%; JIIS 5.3%) A precise estimate on housing need and supply requires a set of specific Table 11 demographics and housing data for East Jerusalem that is not available. And 2014 2015 2016 2017 2018 2019 2020 therefore, based on the approach and assumption followed, the figures could vary. Population 251,043 266,332 274,321 282,551 291,028 299,758 308,751 Households 55,787 57,461 59,185 60,960 62,789 64,673 66,613

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 28 the Quartet. Housing Supply and Demand

“The shortfall of dwelling will amount to approximately 70,000 residential units in 2020”

Figure 18 Vacancy Rate 80,000 The vacancy rate is a value calculated as the percentage of all available units in 70,000 a rental or on sale property that are vacant or unoccupied. IPCC suggest a 60,000 vacancy ratio of 4%. 50,000 40,000 Table 12 2014 2015 2016 2017 2018 2019 2020 30,000 Required Housing Units 58,019 59,759 61,552 63,399 65,301 67,260 69,278 20,000 10,000 The model suggests that from 2014 to 2020, the shortfall of dwelling will amount - 2014 2015 2016 2017 2018 2019 2020 to 69,532 residential units; the annual average supply would shrink to 1,166 units while the annual average of housing needs would amount up to 10,276 units. Total Supply of Housing Units Shortfall of Housing Units

Table 13 2014 2015 2016 2017 2018 2019 2020

Estimated Housing Units in J1 50,143 51,246 52,374 53,526 54,703 55,907 57,137

Population J1 251,043 266,332 274,321 282,551 291,028 299,758 308,751

Av. Household Size 4.5

Households 55,787 57,461 59,185 60,960 62,789 64,673 66,613

Vacancy Rate 4%

Units Required 58,019 59,759 61,552 63,399 65,301 67,260 69,278

Shortfall of Housing Units 7,876 8,513 9,179 9,873 10,597 11,353 12,141

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 29 the Quartet. Profit Potential in the Housing Sector

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Profit Potential

“Higher prices and therefore, better profit margins can be founded in the neighborhoods of Bet Haninia, Shuadat, Sheikh Jarrah and Bet Safafa”

Figure 19 Table 14 $400,000 Av. Housing Cost Av. Housing Selling Price As a reminder, the graph on the left Neighborhood Av. m2 provides an indication of housing

$350,000 Kafr 'Aqb, Atarot 91 selling prices relative to its cost.

Bet Hanina 97 Selling prices of new dwellings are $300,000 orbited in the central area of the city. Shu'afat 83 They could reach up to USD 340,000 $250,000 New Anata 88 for apartments of 80m2. These prices Isawiyya 71 are an indication of the lifestyle that is $200,000 in these neighborhoods. Most At-Tur, Mount of Olives 80 international institutions, consulates and $150,000 Wadi Al-Joz, Sheikh Jarrah 80 ministries are located in Sheikh Jarrah. On the other hand, the demand for Bab A-Zahara, Mas'udiya 75 $100,000 neighborhoods in northern East Old City - Moslem Quarter 45 Jerusalem (Shuafat and Beit Hanina) Old City - Armenian Quarter 61 $50,000 has grown exponentially, and prices could reach up to USD 350,000 for Old City - Christian Quarter 45 $- apartments of 94m2. In the south of East Jerusalem, the Silwan 61 housing prices decline drastically, Abu Tor 76 except in Bet Safafa on which demand Ras Al-'Amud 77 tends to increase gradually. Jabal Mukabar 82 The demand is driven by the social + Um Tubba 85 stratum of residents, access to infrastructure and better public services. Bet Safafa 87

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 31 the Quartet. Profit Potential

“The estimate profit margin is an average of 45% accounting from US Dollar 80,000. In neighborhoods with high demand, it could reach 75%”

Figure 19 As expected, the most attractive neighborhoods $160,000 Profit in USD Table 15 for property developers’ investment are Beit Neighborhood Profit Hanina, Shuafat, Bet Safafa and above all, Wadi $140,000 Kafr 'Aqb, Atarot 25% Al Joz-Shiekh Jarrah. The av. Profit in these Bet Hanina 50% locations could exceed 60% per unit. $120,000 Shu'afat 68% Generally speaking, the profit margin is high in New Anata 10% the East Jerusalem Real Estate market. The main $100,000 Isawiyya 10% reasons that explain the high percentage is due to:

At-Tur, Mount of Olives 40% • High cost and shortage of land available for $80,000 constructions. Wadi Al-Joz, Sheikh Jarrah 75% • Limited number of neighborhoods with basic $60,000 Bab A-Zahara, Mas'udiya 50% infrastructure which boosts a high concentrated demand. Old City - Moslem Quarter 10% $40,000 • A greater demand above the current supply Old City - Armenian Quarter 25% resulted from the natural population growth, immigration movements from places beyond $20,000 Old City - Christian Quarter 25% the wall and the impossibility to build more housing units. Silwan 40% $- Abu Tor 40% • Large number of legal, administrative and Ras Al-'Amud 40% engineering obstacles faced by property developers. Jabal Mukabar 40% • The outstanding period of constructions that can Sur Baher + Um Tubba 40% reach up to seven years. Bet Safafa 60%

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 32 the Quartet. Profit Potential

“ The estimated profit from the construction and sale of new dwelling in East Jerusalem would oscillate in average from 60,000 US Dollar to 140 Million US Dollar”

The estimated accumulative supply of housing, in the period 2015-2020, is In addition, different profit percentages have been applied to draw different estimated to reach up to 70,000 units, for a given percentage of growth. The scenarios that could be related to locations with higher and lower demand. absence of data makes it impossible to determine the future actual supply in terms In accumulative terms, the profit can oscillate between 380 Million US Dollar and of m2 and location. Therefore, it has been assumed that the average of apartment 890 Million US Dollar. size would remain the same per neighborhood Table 16 and Figure 20 2014 2015 2016 2017 2018 2019 2020

Estimated Housing Units 50,143 51,246 52,374 53,526 54,703 55,907 57,137

Estimated Supply 1,103 1,127 1,152 1,178 1,203 1,230

Profit Potential in USD By 2020, it is estimated that there will be about 60,000 housing units in the Arab $180,000,000 neighborhoods of East Jerusalem. The model suggests that in the upcoming six years, about $160,000,000 7,000 new dwellings will be delivered . The profit margin of these new units will be related to $140,000,000 the location, size and complexity of the projects. $120,000,000 • In the following neighborhoods, housing projects will benefit of a profit margin up to 30%, $100,000,000 in the best scenario: Atarot; New Anata; Isawiyaa; and the Old City. $80,000,000 $60,000,000 • In neighborhoods such as At-Tur, Bab-Azahra, Silwan, Abu Tour, Ras Al-Amud, Jabal Al- $40,000,000 Mukaber, and Sur Baher and Um Tuba will experiment a profit margin that can oscillate from 30%-45%. $20,000,000 $- • The more attractive neighborhoods: Wadi Joz and Sheik Jarrah; Shuafat; Bet Hanina; and, 2015 2016 2017 2018 2019 2020 Bet Safafa, the profit margin can be higher than the average and up to 70%. Profit Bellow the Av. (30%) Av. Profit (45%) Profit Above the Av. (70%)

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 33 the Quartet. Obstacle to Housing Development

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Obstacles to housing development

“The Israeli municipality approves on average about 300-400 permits a year, forcing Palestinians to build illegally. Only 13% of the total East Jerusalem area is available for Palestinian construction and the vast majority of East Jerusalem’s land is unregistered”

Planning This leaves only 13% of the total East Jerusalem area (9.2 km2) available for The first challenge faced by Palestinians residing in Jerusalem is obtaining a Palestinian construction, and much of it is built-up already. Figure 21 housing permit from Jerusalem Municipality which is considered to be a lengthy, Zoning in East Jerusalem (Palestinian) costly and uncertain procedure. As stated by the Jerusalem Centre for Legal Aid and Human Rights: there is an annual shortage of 1,500 housing units in Expropriated for Israeli Settlements 30% 35% Palestinian neighborhoods to accommodate natural growth. Whereas, the shortage Zoned for Green Areas and Public of housing units to alleviate overcrowding in East Jerusalem is estimated in the Infraestructure tens of thousands. 13% Zoned for Palestinian Consturction 22% It is suggested by NGOs such as the IPCC, that an insufficient number of building Unplanned Areas permits is issued annually which forces Palestinians to build illegally. It can take up to three years to finish the process of applying for a building permit, and Source: Union for Jerusalem Housing Assembly, 2015 / OCHA Fact Sheet 2011, East Jerusalem Key Humanitarian Concerns permission is often not granted. And hence, given the financial and bureaucratic Infrastructure obstacles, many Palestinians choose to build illegally, incurring the threat of having their houses demolished by Israeli authorities. Inadequacies and deficiencies in the existing public infrastructure create further difficulties to obtaining permits. Requirements such as minimum car parking Zoning space and building lines are typically difficult to meet in East Jerusalem’s dense Of the 70.5 km of land in East Jerusalem, 35% (24.5 km2) has been expropriated neighborhoods. for Israeli settlements. According to the Israeli human rights organization It is worth mentioning that some areas in east Jerusalem, opposite to West B’Tselem, most of this expropriated land was privately-owned Arab property. Jerusalem, lack the basic infrastructure requirements. Another 35% (24.7 km2) has plans that have been approved by the Committee for Planning and Building. The remaining 30 percent (21.3 A 2010 survey by the Jerusalem Municipality, estimated that East Jerusalem km2) has not been included in any plan approved since 1967 (planning is taking needs NIS1.9 billion (US$531 million) to upgrade infrastructure to adequate place in some areas, but not yet approved). Of the 24.7 km2 that are planned, levels (M. Margalit, Discrimination in the Heart of the Holy City, 2006). approximately 15.5 km2 (22% of all land) are designated as ‘green’ or ‘open’ Based on the Municipalitie’s studies (Infrastructure Survey in East Jerusalem, areas where no construction is allowed, or for public purposes such as roads and 2010), Palestinian neighborhoods have received a maximum of 12% of the other infrastructure. Municipality’s budget.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 35 the Quartet.

Obstacles to housing development

“In order to accommodate public infrastructure, Figure 22 landowners are forced to donate 40% of their land for public purposes”

In conclusion, the disparities between East and are caused by both under investment and inadequate planning. In addition, the condition of East Jerusalem’s infrastructure will likely to degrade further as the proportion of unpermitted housing increases. Land Parcel Palestinian land in East Jerusalem is almost entirely privately owned. In order to accommodate public infrastructure, a process termed re-parcellation is required in order to share the burden evenly across different owners. Typically, this requires landowners to donate 40% of their land for public purposes. The Municipality has only initiated the process in two neighborhoods, Beit Hanina and Shu’afat, and despite starting in 2000 many plans have yet to be approved. The small size of East Jerusalem’s parcels, typically less than one dunum, are now a cause of further planning difficulties. In order to reduce the number of plans to be processed, the District Committee introduced a minimum size of 10 dunums for detailed plans. This has made households reliant on the willingness and financial capability of other households to develop joint planning proposals. Land Registration While nearly all of West Jerusalem and areas have registered parcels, the vast majority (92%) of East Jerusalem’s land has no form of land registration. Those that do, typically have only partial registration. Only a few central Palestinian neighborhoods such as Sheikh Jarrah and Wadi Joz contain land that is fully registered. Since the freezing of the Jordanian land registration process in 1967, it has been impossible for Palestinians to fully register the land. This affects both the approval of detailed plans and the issuance of building permits

Source: IPCC

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 36 the Quartet. Obstacles to housing development

“Palestinians are hesitant to obtain mortgages from Israeli banks as a result of their fear of losing collateral property to Israeli entities in case of default”

Access to Finance This forces Palestinian residents of East Jerusalem to resort to Palestinian banks Palestinian households and businesses in East Jerusalem face several impediments operating in J2 areas or in nearby cities such as Ramallah, and . related to access to finance and credit whether for consumption, investment or However, Palestinian banks have restrictions of their own – they rarely accept real housing purposes. The effects of lack of access to credit and mortgages have been estate guarantees from Palestinian East Jerusalemites. compounded by the particularly high prices in East Jerusalem, compared to the Even though deposits made by East Jerusalem residents in Palestinian banks rest of OPT. (e.g. to purchase an average property, with the maximum loan amount to about $200 million, as a result of certain jurisdictional considerations, currently available (US$150,000), a buyer will be expected to make a down certain banks operating in OPT do not provide housing loans unless the clients are payment of almost 50% (IPCC, 2013)). from Palestinian Authority-controlled areas of East Jerusalem (J2). While workers from East Jerusalem have higher average nominal income than Approved applicants are typically government employees with a steady income, those in the remaining OPT, they still face higher prices, and have to deal with but they are charged with relatively high interest rates in the range of 8.5 percent. expensive houses and building permit fees, which make it harder to own homes It is worth mentioning that donor intervention with the objective of expanding (UNCTAD, 2013). access to mortgage loans to provide improved housing opportunities to Despite the need for financing, there are no working branches of Palestinian Palestinian East Jerusalemites was also observed. However, these actions have banks in J1. On the other hand, operating branches of Israeli banks are limited and remained minimal and disparate, with little visible impact. do not cover the basic needs of East Jerusalem Palestinians. The problem In addition to the external support, The Islamic Development Bank has channeled however, is not merely the lack of Palestinian bank branches in East Jerusalem. support to public health facilities and other social welfare projects in East Palestinians are hesitant to open and rely on accounts in Israeli banks for Jerusalem in partnership with United Nations agencies, while some Arab aids financing whether for housing mortgages or business purposes. helped in renovation of Palestinian properties in the Old City. But compared to One of the reasons for this is the language barrier. Bank operations and the challenges of Palestinian social survival and economic development in East documents are all in Hebrew which most Palestinians in Jerusalem do not Jerusalem, efforts have been piecemeal and marginal. command, especially with regards to technical terms used in banking documents. However, the critical barrier is the fear of losing collateral property to Israeli entities in case of default. Inability to pay loan principal or interest in time could jeopardize the client’s property such as houses, land and businesses.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 37 the Quartet. Stakeholder Analysis

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Stakeholders

“Stakeholders for housing development are found at two levels: Private and governmental and non-governmental organizations. Private stakeholders are formed by banks, individuals, real estate agents, brokers, and property developers while the second group of stakeholders are constituted by the Israeli and Palestinian Authorities and I/NGOs”

Figure 22 Once the main characteristics of the housing sector in East Jerusalem are defined, it is necessary to determine the relevant players in the market and the degree of their involvement. Israeli It has been considered international best practices with the purpose to identify and Authorities define the stakeholders wisely. Therefore, it is necessary to distinguish between two levels: Private and Property Developers Governmental and Non-Governmental Organization as each play an important role in the creation of an enabling and favorable environment where the housing sector can grow efficiently: International • Private: Citizens NGOs o Citizens (Individuals) o Property Developers Banks o Real Estate Agents and Brokers Local o Banks NGOs

• Governmental and Non-Governmental Organization: Real Estate o International and Local Organization Agents and o Israeli and Palestinian Authorities Brokers Based on international best practices, a stakeholder mapping framework has been Palestinian adopted, as it is shown in the figure on the right. This diagram is made up of those Authority stakeholders whom are considered to be real opportunity enablers for change.

Private Sector Governmental and Non-Governmental Organization

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 39 the Quartet. Stakeholders in the Private Sector

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Stakeholders in the Private Sector

“The real estate housing sector is not mature enough and property developers faced many challenges in regards to land ownership, zoning, building permits and customers' purchase power”

Only 13% of East Jerusalem's land is assigned for In general, the real estate housing sector is not mature construction. Most of it is already built, Figure 23 enough, and since most of informal businesses are unregistered and privately owned. Citizens could constituted by family businesses that do not play the role of borrowers, landlords and builders. necessarily develop their projects with the standards, procedures and legal requirements that formal Most of citizens' housing projects are mainly used businesses comply with, such as registration of the for renting purposes. In addition, there is no land among others, formal and informal businesses available data determining with a high level of collide frequently in the development of projects. accuracy the percentage of land owned by Therefore, real estate developers, in the formal individuals nor the relation between housing economy, are forced to seek more complex projects development project initiated by individuals and Property that informal business cannot develop, such as property developers. Developers initiatives in a larger plot of land and more apartment units of higher quality among others. Although, there is a good fabric of credit system Citizens among Israeli banks, East Jerusalemites are The main obstacle faced by property developers is the hesitant to obtain mortgages from these banks as a ownership of the land and the customers' access to result of fear of losing collateral property to Israeli Real Estate finance. entities in case of default. Agents and Nevertheless, Israeli Banks require the registration Brokers of the land to be updated to the benefit of the Banks borrower. This is the main reason behind the loan Agents and brokers are not properly formalized in denial. the business sector and the group is mainly constituted of the individuals which consider this In response to the needs of Jerusalemites, work as an alternative source of income. Therefore, Palestinian banks are articulating a fund provided it is nearly impossible to define their marketing by Jada's Islamic Development bank for techniques. They basically rely on their network encouraging new dwelling purchases. The ceiling and word of mouth. of these loans is 300 Thousand of US Dollar and it covers up to 85% of the price. Private Sector

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 41 the Quartet. Stakeholders in the Private Sector

“67% of the interviewed property developers are micro-companies against 16% that are SMEs and 17% that are considered Large”

Housing Developers Strategic Growth Drivers

In Israel, the Business Tendency Survey conducted by the Israeli Central Bureau To date, there is no fair profile view of housing developers in East Jerusalem. of Statistics in 2013 stated that the main barriers for housing development are the The set of structured interviews conducted combined with survey techniques have lack of available land and permit delays. allowed to roughly highlight the definitive characteristics of these key players. Mainly, company size; functions; operating sites; factors for strategic growth; Figure 25 their existing housing projects; and the external factors that might limit the market

Company Size

For the purpose of the study, the definition of company size given by the Palestinian Authority has been adopted as follow: Less than 10 employees are considered Micro Enterprises; Between 10 and 20 employees are considered Small and Medium Enterprises (SME); More than 20 employees are considered large companies. As it can be seen in the chart below, the exercise indicates that 67% of the interviewed property developers are micro-companies against 16% that are SMEs and 17% that are considered Large. This result is expected since most of the companies are family oriented.

Number of Employees Figure 24

>0<10 17% Under the circumstances of the housing market in East Jerusalem, real estate 16% companies can thrive amid complexity and deliver high returns, through >10<20 strengthening their capabilities beyond traditional competences through business 67% expansion, innovation model, finance restructuring and functional and leadership >20 skills. *Wet work include foundations, plastering and flooring. Source: Dimensions Consulting Analysis Source: TAUB Center for Social Policy Studies in Israel. The State Report 2014. ICBS, Business Tendency Survey Oct. 2013

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 42 the Quartet. Stakeholders in the Private Sector

“Property Developers are moving towards a strategic partnership to develop more complex and profitable projects in order to differentiate investment strategies”

Additionally, 58% of the respondents have stated that industry specific skilled The major findings are the following: labor (wet and non-wet work) is hard to find and hence, Major expenses are Growth: expected to be invested in their talent development. It is worth mentioning that 32% of them is referred to workers with poor skills in regards to wet-work, Access to properties not yet managed properly and brand expansion are the top meaning: foundations; plastering; and flooring. priorities when considering growth. Regarding financial sources, 17% of the surveyed stated that they have faced Innovation: complications in accessing bank loans. Transformation of the business model along the value chain was considered the In East Jerusalem, developers face similar constrains. Shortage of land that is top priority as a mechanism to overcome market challenges, followed by available for constructions and delay of the building permit issuance are the major differentiating investment strategies. obstacles in the development of the housing market. Banking services are not Finance: considered a challenge nor is the skilled labor Refinancing exiting debt in order to reduce risk was the single top priority. The Under these circumstances, real estate companies can thrive and deliver high Project can be extended beyond five years, and hence, reducing their returns by strengthening their capabilities beyond traditional competences through profitability. business expansion, an innovation model, finance restructuring and functional and leadership skills. Functional and leadership Skills: In order to contextualize these competences, the analysis set the foundations on Interviewees agreed that the most important action to strive for better project five strategic pillars and inquired into the challenges and priorities among the management is investing in creative employees with industry knowledge and interviewees. These pillars are: experience. • Expansion. In the next slide, it is provided the table for the strategic growth drivers and their respective results. • Innovation.

• Finance. • Functional and Leadership Skills.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 43 the Quartet. Stakeholders in the Private Sector

Table 17 “Refinancing their existing debt to reduce risk and investing Strategic Growth Drivers in innovative and creative employees are the two greatest Pillars Drivers Rate Merger and Acquisition 1.5 factors for a better management of housing projects” Expansion Industry wide investment 1.5 Accessing properties not yet managed professionally 2.75 It can be observed that expansion drivers rated the lowest were “Merger and Brand 3.4 Acquisition” and “Industry wide investment”. Developers would rather focus on their success stories to build the greatest reputation and make new projects more attractive to Transforming the business model along the value chain 3.5 Differentiating products and services 2.8 the public. Although, it is not a common practice and is not yet implemented, Innovation Differentiation investment strategies developers might consider access to property not properly managed to be interesting. 3.25 Differentiating sourcing strategies 2.2 As it is expected, mostly all developers interviewed agreed that “Source Strategies” are Got to market speed 3.5 not important due to the vast numbers of players in the supply of building materials and Lean cost basis 3.25 labor. Fixing existing portfolio 3.25 The current trend is that developers are moving into strategic partnership to develop Finance Refinancing 4.25 more complex and profitable projects as intent of “differentiating investment Capital sources 3.6 strategies” and major backward and forward integration along the value chain to have a Functional Industry knowledge and experience 4 better control of the process, reduce cost and reduce the time to market. Skills Assets management 3.75 Additionally, developers believe that accounting control and cost measurement Strategic thinking 3.25 Innovative and creative thinking 4.5 processes must be driven towards the provision of more suitable information about Leadership People and team leadership 4 control, decision making and understanding of customer value. Skills Change leadership 3.5 Among finance drivers, developers might recur to refinancing in order to take Stakeholder management 4 advantage of better interest rates; and reduce or alter risks.

At international level, talent development and management are considered key factors The criteria utilized to determine the degree that drive revenue growth. The property developers interviewed confirmed this. All of or level of priority, is based on the responses Measurement criteria used to assess priorities among given by the higher management., as follow: Real Estate Developers them stated that functional and leadership skills are very important when hiring and in some cases, could weigh more than their educational background. 1=Not Important at All Not Very 2= Not Important Important Important Important 3= Important 4= Very Important Below 2.5 2.5 to 3 Above 3 5= Extremely Important

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 44 the Quartet. Stakeholders in the Private Sector

“Several scenarios can be drawn when considering the responsiveness to legal and engineering requirements. Property Developers suggest that the average of a housing development project should range between three to five years” Table 18

Scenario 1 Scenario 2 Scenario 3

Urban Plan Available Available Non Available

Zoning Available Available Non Available

Building Permit Available Non Available Non Available

Period for Project 2 Years 3 to 5 Years More than 5 Years Completion

Not being fully aware of the legal and engineering requirements for the construction of housing units in East Jerusalem can be dramatically disastrous and would damage in one way or another each stage of the value chain. The zoning is intrinsically related to the lack of urban planning, and hence, highlights the shortage of construction area and that land ownership may not be properly delimited among landlords. As an example, It was stated by one of the interviewees that the proper limitation of their land took about three to four years before they could apply for building permits. The procedures of issuing building permits can last about two to three years. Developers are fraught aware of the particularities of the sector: materials and construction goods; reliable suppliers and workers; and standards of operations and production. And hence, the construction period can vary from one to two years, only. In conclusion, while it is expected that the average development framework ranges between three to five years, stakeholders can mobilize in unison to develop a public advocacy plan towards factors of urban planning, zoning, and licensing to optimize procedures.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 45 the Quartet. Stakeholders in the Private Sector

“374 and 236 apartments are expected to be delivered in Sharafat and Beit Hanina, representing the 37% and 23% of the interviewed current supply, respectively”

Housing Development Projects Nevertheless, from a perspective of the current supply of housing units (It is At first glance, it can be observed that property developers are directing their worth mentioning that most of these projects are self-financed), it was roughly efforts to meet the increasing demand for Beit Hanina, Shuafat, and Beit Safafa estimated that there will be approximately 1,000 units deployed. The chart below and Sharafat neighborhoods. The chart below shows the neighborhoods where shows their distribution per neighborhoods. It is worth highlighting that 374 developers operate. 40% operate in the Northern East Jerusalem and another 40% apartments are expected to be delivered in Sharafat, representing the 37% of the in Southern East Jerusalem. current supply; and other 236 dwellings are expected to be delivered in Beit Hanina, representing 23% of the current supply. Even though the Shuafat It is worth highlighting that while Wadi Al-Joz- / Sheikh Jarrah are the neighborhood has more demand than Beit Hanina and Sharafat, the current supply neighborhoods with greater demand, the shortage of land and its high cost hinder is much more limited, representing only 4% of the total. This could be explained the capabilities of companies to develop housing projects. Consequently, it is by shortage of land and the type of land ownership, mostly private and not understandable that none of the interviewed developers operate in these locations. properly registered.

Figure 26 Regarding the quality of delivery, 75% of the interviewees have affirmed that the quality of their housing supply is above average against 25% who stated that the Neighborhoods where Property Developers are Active quality of material, finishing and amenities of their project are fair. Figure 27 Beit Hanina Neighborhood Units Housing Project 7% 20% Beit Hanina 13% Shu’fat 236 Beit Hanina Shu’fat 41 Jerusalem “Al - Quds” Shu’fat 7% 13% Ras Al-Amud 16 13% 23% 20% Ras Al-Amud Ras Al-Amud 4% As–Sawahira Al–Gharbiya As–Sawahira 124 As–Sawahira Al–Gharbiya 2% 7% 7% 6% 12% 7% Beit Safafa Beit Safafa 22 37% Beit Safafa Sharafat Sharafat 374 Sharafat

Sur Bahir Sur Bahir 125 Sur Bahir Jabal Al – 2% 72 Ash-Shayyah Mukabbir Jabal Al – Mukabbir

Source: Dimensions Consulting Analysis Source: Dimensions Consulting Analysis

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 46 the Quartet. Stakeholders in the Private Sector

“441 new dwellings are expected to be delivered by the interviewed developers in the upcoming three years as follows: 70 units by the end of 2015, 189 and 182 units in 2016 and 2017 respectively”

In regards to the apartment size, it was indicated that it can range from 96m2 to It is worth mentioning that 83% of the interviewed developers have affirmed that 126m2 (Apr. av. 110m2) for which prices can vary from US Dollar 2,000– 3,500 building permits are already available against 17% who do not but are in the per m2 based on location and quality. 67% of the interviewees believe that price process of obtaining them. will increase. Additionally, 33% do not own the land and have recurred to partnership with Table 19 landlords, splitting benefit. The most common ratio is 60% (developers) - 40% Luxury Average Quality High Quality Apartments Apartments Apartment (landlords). Nevertheless, one of the interviewed developers have stated that benefit can be split equally. Another type of agreement can be reached for social Min. Max Min. Max Min. Max housing development with social institutions. Developers can lease huge spots of m2 120 150 100 128 70 100 lands for over 100 of years or more. While 300 dwellings are completed, there are about 700 housing units to be In regards to the sales trends, 60% of the interviewees have experimented a steady delivered. 400 apartments are still in the pre-development phase while 300 are on volume of sales of one to 10 houses per month, and other 40% above 11 houses the queued. These 700 units are to be deployed in the coming years as follow: per month.

Figure 28 Figure 29 Year for Deployment Average Sales per Month

10% [0,10) houses 18% 2015 2016 20%

27% 19% 2017 2018 [10,20) houses 20% 60%

26% 2019 [40,50) Houses

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 47 the Quartet. Stakeholders in the Private Sector

“Real Estate and Housing Developers estimate an accumulative gross revenue of 180 Million US Dollars by the end of 2019”

It was stated by one of the key interviewees that in East Jerusalem, for every 100 • Dour for Engineering and Planning potential customer, only five can afford their prices. And four out of these five have paid through bank loans. • Al Quds Mustafa Abu Hamad Assuming average monthly sales of 10 houses until 2019, it is estimated that 60% of their upcoming housing supply (600 units) will be sold. Translating this into • Rajab Abu Asab and Sons Company gross revenue, it is expected to approximately reach up to 180 Million US Dollars. • Jamal Jaber

Today, 150 housing units are sold (15.5% of the supply) are sold and 850 • Ismail Ushahe apartments (84.5%) are still for sales. Key Players • Basem Misk A mapping of competition market is complex to draw due to the variety of the players and the secrecy of the sector. Below is provided a sample list of key • Beit Al Maqdess Surverying Services property players (companies and individuals): • Samer Mustafa • Sami Awadallah Construction Company

• Al Quds Holding

• Ali Brothers Co.Ltd

• Trading ad Investment Company (TAICO)

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 48 the Quartet. Stakeholders in the Private Sector

The Motivation Drivers of Key Players Business Business

• Financial Goals: The housing sector offers a high profit margin that continuously attracts new individuals. property developers currently Drivers existing in the market preserve secrecy of information due to the vast majority of players in the informal business and limitations in the sector. Strategy Due to the high cost of land, building permits and increasing demand, market prices are fully controlled by developers allowing exaggerate profit margins above 45%. Increasingly, developers turn to collective development and cooperation to reduce building cost but maintaining similar selling prices. • Corporate Culture, Structure, and Leadership Backgrounds: The existing players in the formal economy are run as a family business. They are family owned (private companies), family run, and even hold the family name. The management of the company is inherited from one generation to the other. This all results in a closed culture with very vague, undocumented bylaws and informal business profiles. • External Constraints: The real estate companies in East Jerusalem are affected by a number of external factors. Israeli Municipality impediments for issuing building permits is the most common restriction faced by all of the companies, in addition to lack of proper planning and zoning, limited infrastructure and difficulties in accessing lands due to its private ownership character. • Business Philosophy: Almost all of the companies share the same ideals which are highlighted in two principles: the continuation of the family legacy and the support of the East Jerusalem economy environment. The companies take pride in their name and success story. Business Business

Assumption Capabilities

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 49 the Quartet. Stakeholders in the Private Sector

The Current Strategy of Key Players Business Business

• How the business creates value: Non-Price competition is the most effective method of marketing in the housing sector in East Drivers Jerusalem. All developers share, more or less, the same price range for given quality standards and neighborhoods. Property developers Strategy try to create value for customers through targeting niche markets that are formed by young families with relatively high incomes with white collars jobs; and focusing on creative design of building, newness of amenities (balcony, parking, storage, parks, etc.), and expanding their brands. • Where the businesses are choosing to invest: Property developers try to create more investment value through differentiation of investment strategies, targeting major residential and commercial real estate asset classes. This includes high quality multifamily compounds and shopping centers. a new trend is observed where existing developers join to develop and co-finance real estate landmarks. • Relationships and networks the businesses have developed: The network of connections is very important in the housing sector. Property developers strive to build strong relationships with players along the value chain. Emphasis is put on building strong communication channels with the Jerusalem Municipality; partnership with foreign and local aid development agencies (INGOs and NGOs), banks, MoPWH, PECDAR, lawyers and suppliers of construction materials and labor. A strong affiliation with these organizations helps in landing more projects as well as an easy and organized implementation.

Business Business

Assumption Capabilities

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 50 the Quartet. Stakeholders in the Private Sector

The Assumptions of Key Players Business Business

• Strengths: Existing companies hold some control over the supply chain since there is a vast number of suppliers of building materials and labor Drivers in both formal and informal economy from Jerusalem and the West Bank. This helps in reducing the costs, time, and improves quality control. Strategy Another strength for companies is their occupancy rate which each believes others cannot affect due to the shortfall of available licensed houses and high demand. • Weaknesses: The lack of highly qualified and specialized individuals in the housing sector create a problem in the management of projects when dealing with constraints such as zoning, building permits and legal related issues. Another weakness is the impossibility to reach economy of scales due to the limited number of stories that property developers in East Jerusalem are abided by. • Organizational Values: Since the companies are family owned and managed, they are affected by the family’s reputation and vice-versa, which creates more pressure on management to uphold high standards. Such standards include ethical behavior, producing high quality products, professionalism and accountability and excelling in customer service. • Perceived Industry Forces: Companies believe that the housing industry in East Jerusalem is affected by the Israeli Authority (more specifically, the Jerusalem Municipality) since they are failing to provide the necessary infrastructure and other public services. Also, regulations to license unpermitted houses on one hand, and the increase of settlements on the other which is gradually attracting more Palestinian buyers and limiting Palestinian neighborhood expansion. Finally, one the major obstacles highlighted by developers is the limited support and financial sources made available for buyers. Business • Beliefs about Competitors’ Goals: In one way or another, Developers share similar goals in terms of profitability, project advancement and Business modernization and strengthening their position in the market.

Assumption Capabilities

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 51 the Quartet. Stakeholders in the Private Sector

The Capabilities of Key Players Business Business

• Marketing skills: Even though there is a lack of professional brokers and real estate agents, Property developers do not put a Drivers great effort in promotion and media coverage; most of these companies even lack a marketing department. Existing businesses Strategy depend on the word of mouth and their network of connections for their marketing schemes. • Ability to service channels: Since most of all of the existing companies move backward and forward in the value chain, it can be said that most of the engineering and architectural firms and the Construction Company control the supply chain core services, meaning logistics, information flow and capital flow control, procurement of raw materials and sales to the end consumers. On other hand, investment companies rely on these firms to carry out the procurement of raw material and intermediate goods and the construction itself. While information and capital flows as well as the transaction are controlled by them. • Financial strength: Most of the companies, if not all, have affirmed that they benefit from a relatively stable financial health. However, developers can be largely affected by the limited purchase power of their customers in terms of pay back and internal rate of return. • Leadership qualities of CEO: Most of the businesses started with the family owning a piece of land on which ,at certain time, they decided to build on. The qualities that were commonly observed among general managers and industry experts are the following: integrity; revenue-driven; and, determination. Business Business

Assumption Capabilities

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 52 the Quartet. Stakeholders in the Private Sector

“The Islamic Development Bank launched a long term financing program of 30 Million US Dollars. The loan can range from 30 – 300 thousand of US Dollars and covers up to 85% of the price”

Banks The interest rate applied is the commonly known Islamic “Murabaha” of 3.5% corresponding to management fees. Additionally, one time payment for administration fees of 1% of the total value of the loan. The installment should Palestinian Banks not exceed 50% of borrowers’ monthly salary The Islamic Development Bank launched a long term financing program of 30 Unfortunately, most Palestinian Jerusalemites are not able to fulfill the mentioned Million US Dollars, with the objective of facilitating Palestinian Jerusalemites’ conditions. access to finance for housing. This fund is articulated through three major Palestinian banks: Israeli Banks • The National Bank (TNB). Bank Hapoalim, and Leumi among others provide loans called “Mushkanta” up to • The Cairo-Amman Bank. 75% of the selling price, payable on 25 years at 3% interest rate. • Bank of Palestine. This loan can be provided for house purchase or construction. Among the The criteria for Palestinian residence in East Jerusalem to be eligible to apply for requirements, the most critical one is the availability of land registration and this grant is the following: proper ownership, which most of the lands in East Jerusalem lack.

• The loan is only granted to the first home purchase and for J1. • The Palestinian East Jerusalemites should have Jerusalem ID card but do not Citizens – Customers hold Israeli Nationality. • The house unit has been built according to legal requirements (licensed building) and standards. Buying a house is a long-term decision for at least two aspects: it is financially • Jerusalemites are advised to transfer their salaries to a correspondent Palestinian binding and it is the kind of product “consumed” in the long run. Compared to bank ( the minimum accepted monthly salary is US Dollar 1,100). buying convenience products, consumers perceive these kinds of ‘large ticket’ • Income proof for guarantees with non transferred salaries. purchases as riskier, sometimes even ‘traumatic’. For a complicated product such • A personal guarantee from a first degree relative. as a house, the information coming solely from a buyer’s memory is generally inadequate (Gibler and Nelson 2003). An individual complying with the above criteria is eligible to ask for a loan. The loan can range from 30 – 300 thousands of US Dollars, and covers up to 85% of The foundation of the buying decision is set on the following variables: product; the price, payable in 30 years. external and internal factors; and, services granted.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 53 the Quartet. Stakeholders in the Private Sector

“87% of the surveyed East Jerusalemites stated that the down payment should be less than 50 Thousand of US Dollars and 79% indicated that a convenient installment should range among 700-1,000 US Dollars”

Figure 30 Buying Decision Factors’ Scheme Price With the occasion of their new housing development projects, a survey was conducted by Al Quds Holding in relation to the buying decision factors among key neighborhoods in East Jerusalem (mainly Beit Hanina, Shuafat, Essawya, Sour Baher, Silwan, At Toor, Jabal Al Mukaber, Kofer Akab, Old City, and Ras Al Location and Product development phase Amud).

Culture and Family The following main conclusions were drawn from the survey:

Neighbors / • 88.9% of the surveyed are in need of a first residential unit, against 4.8% that Compounds will use additional units as a second residence. Demographics • 69% of the surveyed confirmed that the convenient apartment size should range External Factors between 100-140m2. 37% of them stated that it should oscillate between 100- Property Developer 120m2. Behavior and Reference Group Buying Decision • 87% of the surveyed stated that the down payment should be less than 50 Factors thousand of US Dollars. • The monthly installments should not exceed 1,000 US Dollars. 79% indicated Variety of Customization Apartments Services that a convenient installment should range among 700-1,000 US Dollars. • For a vast majority of the surveyed, property developers are trusted in terms of Isolation / Privacy Size the process of production and delivery. • Marketing oriented practices should target not only the purchaser but their families as well since 62% of the respondents affirmed that it is a family Risk Internal Factors decision. • As financial sources, Banking and lending services must be developed properly

Motivation since only 27.8% have the potential to buy a residential unit by cash. In addition, Source: Al Quds Holding Islamic mortgages have 67% preference over regular ones.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 54 the Quartet. Stakeholders in the Private Sector

“54.5% of the surveyed indicated that they have the potential to buy a house in installments with a down payment from a Palestinian Bank, against 45.5% who would deal with Israeli Banks”

• The survey indicated that East Jerusalemites partially deal with both Israeli and Real Estate Agents and Brokers Palestinian banks partially. 54.5% of the surveyed indicated that they have the potential to buy a house in installments with a down payment from a Palestinian Bank, against 45.5% who would deal with Israeli Banks. As it was mentioned previously, agents and brokers are not properly formalized in the business sector and the group is mainly constituted by the individuals which • The apartment sizes of the residential compounds should vary to meet the buyer consider this work as an alternative source of income. needs. 70% agree on having different apartment sizes in the compound and 13.4% disagree. Real Estate agents commonly deal with properties in rent. The fees they earn, regardless of whether it is a long or short term rental, correspond to one month • Examining customer preferences about residential units’ amenities, the survey rent. And the brokers’ fees for real estate/house purchase oscillate between 2%- indicated that 27% preferred the parking lot. 22.4% preferred the balcony, the 5% of the sale. private entrance with 19 % and 15.8% preferred the outdoor space and the storage. • The surveyed preferences about housing projects location showed from most important to less, the following: Away from pollution; Close to services center and transportation; Quiet; Easy to recognize; Not anywhere near other apartments; and constructed on a high level. • Second construction phases are not considered a point breaker of the buying decision. • As a conclusion drawn from the 77% of the surveyed responses, East Jerusalemites are not savvy customers. They just want basics. • Housing projects should be family oriented and preserve a certain social status.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 55 the Quartet.

Stakeholders in the Governmental and Non-Governmental Sector

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“The Israeli applied urban planning policy neglects the needs of people in four related aspects: land use, existing gap between population growth and availability of land for expansion, green areas, and restriction to building permits”

There are many organizations working towards the Figure 31 Their responsibility is to respond to the needs of the welfare of Jerusalemites. population of Jerusalem. At a social sphere, these organizations (Arab and The master plan 1995 (a tool for the planning system Israelis) preserve the economic and political rights to allocate resources to either allow or confine of Palestinian Jerusalemites. At a specific sphere, development) determines the urban planning of there is a limited number of organizations that Israeli Jerusalem (West and East) and obliges property work towards the improvement of the factors and Authorities developers to comply with its norms. environmental conditions that affect the boost of housing development. These are namely IPCC, the Although, it allows third parties to extend the “Israeli Committee Against House Demolitions” development of the master plan for a given (ICAHD), Union for Jerusalem Housing neighborhood in East Jerusalem. This make room to Assembly, and Palestinian Housing Council. The non-profit organization to work on Urban Planning, last two organizations have interesting services, in International Zoning and Development. relation to housing development support and Org. The municipality of Jerusalem is responsible for finance option for borrowers. issuing building permits that include license to build Local and access to public infrastructure. The Palestinian Authority envisions the Org. reinforcement of the resilience of Jerusalem population and preservation of its Palestinian and Arab character in order to maintain it as the capital They are formed of international and regional of the . Consequently, the institutions with representation in East Jerusalem. objective of the Palestinian Authority is to increase Among their work, they seek the welfare of the number of housing units available to Jerusalem and Palestinian Jerusalemites, such as the Palestinians by building new units, restoring the Palestinian QQR, UN entities, the Portland Trust, INGOs such existing units and legally advocating to increase Authority as the Lutheran World Federation and Consulates, the area allocated for housing. among others. The proposed interventions range from the provision of soft loans and individual lending Governmental and Non Governmental Organization schemes and capacity building among others.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 57 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“Currently, the Master Plan 1995 is been executing, The Jerusalem Master Plan Figure 32 waiting for the legitimacy of the master plan 2000” 2000 is to be considered as the first comprehensive plan for the “whole” city of Jerusalem and the first Israeli Authorities document, detailing the Israeli’s spatial vision for both west and East As it was previously thoroughly discussed, the Municipality of Jerusalem is Jerusalem. responsible for the development of the urban fabric of Jerusalem City. Bet Hanina

Shuafat

Isawya Sheikh Jarrah

Old City

Bet Safafa Sur Baher

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 58 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“The expected increase of new residential units in East Jerusalem by expansion and densification strategies will approximately amount to 70,000 dwellings. Only 32,000 units correspond to Palestinian East Jerusalemites' needs"

Table 20 As complied in the “Jerusalem Master Plan: Planning into the Conflict, by Expansion Densification Francesco Chiodelli”, the Master Plan 2000 (the Plan) attempts to resolve all (Residential Units) (Residential Units) Jerusalem’s urban problems in a neutral way, without any discrimination, and Jewish Population 31,778 19,131 regardless of political issues connected with city governance. It states that the purpose of the plan is to ensure “an urban quality of life for all Arab Population 14,462 18,168 the residents and “to preserve the special character of the city as a world city, Source: The Jerusalem Master Plan: Planning into the Conflict, Francesco Chiodelli sacred to the three major monotheistic religions of the world and at the same time to create a lively and vibrant city providing its citizens with a high level and As it can be observed from the table above, the increase of residential units in the quality of life. Arab neighborhoods will correspond in its majority (55.7%) to densification strategies. In addition, the Plan declares the need to fix the problems of the Arab areas: for instance it declares the necessity to solve the problem of inadequate infrastructure This could be understood from two aspects: firstly, from a technical perspective, and to meet the Arab population’s enormous demand for residential building. the fabric of Arab neighborhoods is sparser and has a lower density in comparison with Jewish neighborhoods and thus, densification is more feasible. Secondly, There are two main strategies suggested to guarantee new buildings: from a political perspective, the densification strategy, unlike expansion, does not • Densification: entail territorial occupation or consumption. And hence, preserving Jewish territorial occupation. Increasing the actual limits on height or volume. In addition to the above, and in line with the Plan’s main objective of developing • Expansion: the city of Jerusalem as a capital of Israel and an Israeli Metropolitan Center, Expansion of existing neighborhoods and the construction of new residential much of the Jewish residential increase is expected to be within East Jerusalem. neighborhoods on the outskirts. 37,000 new residential units (9,400 units surround Beit Hanina and Shuafat neighborhoods) will be built in East Jerusalem, while in Arab neighborhoods it amounts to 32,630 new residential units, only. It is worth mentioning that most of these new Jewish residential neighborhoods will constitute public housing and will be dedicated, exclusively, to Jewish population.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 59 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

Figure 33 Figure 34 400 2500 Housing Housing Units Units

Beit Hanina

650 Housing Units

800 Housing Units 800 Shuafat Housing Units 2,100 Housing Units

Source: The Jerusalem Master Plan: Planning into the Conflict, Francesco Chiodelli.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 60 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“Illegal housing construction is directly connected to the extreme difficulty for an Arab inhabitant to obtain a building permit and the Separation Wall, once completed, will exclude several Arab neighborhoods from Jerusalem and will add others”

In regards to the opportunities for Arab housing increase by expansion or • The completion of the wall will completely alter Jerusalem’s urban densification, Chiodelli concluded that it is likely to be unattainable if we take conformation. Very large swathes of West Bank territory, where a large number into account that: of the most important Israeli settlements in the West Bank around Jerusalem are • The majority of the 15,000 unauthorized Arab residential units are comprised of located, will be physically annexed to Israel (and to Jerusalem). Moreover, the stories added to existing housing without a building permit and consequently, wall will exclude several Arab neighborhoods from Jerusalem. This is the case the space that the plan devotes to densification is already occupied. of Samiramis, Kafr Aqab, Shu‘fat refugee camp, Ras Khamis, Dahiyat As- Salam, and Al Walaja. These neighborhoods are inhabited by almost 55,000 The possible results of this situation are twofold: first, an ex post process of Arab Jerusalemites. Figure 35 regularization on the basis of the plan’s proposals and second, the interruption of many processes of densification proposed by the plan, with blame for this attributed to unauthorized building. There are many causes of unauthorized building, but the main one is certainly connected with urban policies and bureaucratic mechanisms implemented by the Israeli municipality. In particular, illegal housing construction is directly connected to the extreme difficulty, for an Arab inhabitant, of obtaining a building permit. In addition, it is not possible to obtain building permits in areas characterized by an infrastructure shortage: this is a characteristic of many Arab neighborhoods. Moreover, it is not possible to obtain any building permit within areas where no detailed plan has been approved: many Arab districts are not provided with these kinds of plans and (as the master plan itself highlights). In addition to that, there are also several problems connected with the land registration system or the very high cost of building permits.

Source: The wall. The Jerusalem Master Plan: Planning into the Conflict, Francesco Chiodelli.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 61 the Quartet.

Stakeholders in the Governmental and Non-Governmental Sector

“The Municipality insists on transferring 40% of private land in East Jerusalem to public services such as roads, parks and schools while their Master Plans for Arab neighborhoods are not being developed with local residents and detailed plans which would guarantee building rights”

The IPCC provides an overview of Jerusalem Municipality's Restrictive In most cases the Municipality still insists on full transfer of ownership of land Measures, that it is summarized by the following: allocated for public use. In practice, such transfer has no advantage to the Public Space: The Municipality insists on transferring 40% of private land to provision of public services and blocks Palestinian private and civil society public services such as roads, parks and schools. This concurs with accepted organizations from developing community institutions. international standards on requirements for public facilities within Registering the private land allocated for public use as municipal property, neighbourhoods. inevitably, such stipulations are met with suspicion from the community and However, the Municipality does not recognise the large areas already allocated for weaken support for the plans. public open space in the Jerusalem 2000 Plan in Palestinian neighbourhoods. This Counter Planning: After decades of refusing to plan in Palestinian areas, the leads to the common situation whereby a landowner who has already lost more Municipality has initiated General Master plans in three Neighbourhoods than 40% of their land as public open space is then asked to contribute 40% of (BeitHanina, surBaher and Jabal Al Mukabeer) already being planned by IPCC. their already diminished plot. Unlike IPCC’s plans, these are not being developed with local residents and Moreover, the majority of Palestinian neighbourhoods are already built-up, detailed plans which would grantee building rights. allocating 40% of land for public services is often only possible by demolishing Discriminatory City Level Planning: Planning at the city level makes little the existing structures. consideration for Palestinian neighbourhoods. Regional road networks, Tourism, The allocation of public land is done at the level of small areas of less than 100 employment areas, logistics hubs and commercial centres are all located for the dunnum meaning it will create fragmented small parcels of land difficult for benefit of Jewish areas, either in West Jerusalem or in the Settlements. implementing projects specially those serving the entire neighbourhood and the The positioning of regional and primary roads are often detrimental to Palestinian City level. neighbourhoods, both failing to provide adequate connections between Further to this, the interpretation of ‘public facilities’ is highly restrictive. IPCC neighbourhoods and in many cases dividing or cutting through existing built experience suggests that in Palestinian areas the Municipality only accepts public areas. institutions and roads, while in West Jerusalem and Settlements a much wider Land Owners: Ownership of land used to block planning initiative by the range of activities are allowed including cultural, sport, civil institutions, religious community in the different areas, by needing 51% signatures at least for detailed institutions and commercial activities. plans, at the stage of opening plan file number and the discussions with the authorities.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 62 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“Affordable housing program must be in partnership with the Palestinian Authority, private sector contractors/property developers, and donor and agencies for the provision of subsidies for housing and infrastructure”

Palestinian Authorities MoPHW recognizes that the affordable housing program must be in partnership with the Palestinian Authority, private sector contractors/property developers, and donor and agencies for the provision of subsidies for housing and infrastructure. The Palestinian Authority in the National Development Plan 2014-2016 Figure 36 reconfirmed their pledge regarding the sustainable development of East Jerusalem in the basis of the Strategic Multi Sector Development Plan for East Jerusalem (SMDP) that is being articulated since 2011.

In this regards, the major Palestinian institution working on the housing sector is the Ministry of Public Work and Housing (MoPWH) and the Palestinian Economic Council for Development and Reconstruction (PECDAR). Ministry of Public Work and Housing In September 2013, the MoPWH drafted a National Housing Policy (NHP) which objectives and strategies are adapted from the “Housing Sector Strategic Plan” of the Ministry of Public Works and Housing, as contained in the “Palestinian National Plan 2011-2013”, and the “Strategic Plan for Developing the Housing Sector in Palestine” (2010). Additionally, the NHP’s objectives and strategies are based on results of the draft Housing Sector Profile produced by UN-HABITAT in July 2013 and a series of focus group discussions with the MoPWH and other housing sector stakeholders in 2012 and 2013. The MoPWH envision a well-functioning and equitable housing sector to help Palestinian to access to sufficient, affordable and good quality housing in West Bank, Gaza and Jerusalem. The figure on the left illustrate the MoPHW’s framework. Source: Draft National Housing Policy , MoPWH /Un-Habitat

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 63 the Quartet.

Stakeholders in the Governmental and Non-Governmental Sector

“The articulation of financial sources and programs of subsidies and international funds is considered to be the cornerstone to establish a sustainable economic housing development”

The housing construction and upgrading in East Jerusalem takes a major role and In addition to above, the NHP also envisions a scenario of post-independence. it is tackled from a special prism and more sensitive rationale. Under this situation, it is suggest that the Palatine Authority and local government should prioritize the following: The NHP is acquainted with the challenges and needs that Palestinian East Jerusalemites face in their neighborhood, as a result of the impediments to • Upgrade and legalize Palestinian neighborhoods. obtaining permits, and improve their housing conditions among others. • Draw up regional plans for East Jerusalem and its hinterland. The NHP proposed that in order to achieve better living condition of the • Draw up urban plans for East Jerusalem. Palestinian Jerusalemites, government institutions, non-governmental • Declare “special project areas” in zones of historical and natural significance organizations and international donors should collaborate to prioritize the (linked to urban plans), with a view to protecting the natural and cultural following: heritage and landscapes of these areas. • Support Palestinian residents in their efforts to obtain building permits. The Palestinian Economic Council for Development and Reconstruction • Support Palestinian residents in their efforts to obtain home loans at more In PECDAR’s Strategic Development Plan (SDP) 2013 for the city of Jerusalem, favorable rates. it is stated that the State of Palestine through PECDAR aims at reinforcing the resilience of Jerusalem population and preserving its Palestinian and Arab • Make available subsidies to Palestinian households to legalize their homes or to character in order to maintain it as the Capital of the State of Palestine. access new housing. PECDAR recognized that in order to achieve their stated vision, it will be • Make available funding to help Palestinian families defend their housing rights required the following: in court. • Official Palestinian bodies have a responsibility to continuously search for • Make available funding for infrastructure for housing cooperatives. development interventions, keeping abreast with the daily happening in the city and supporting any initiative for its development. • Make available funding for new housing projects for Palestinians in East • A clear reference framework for Jerusalem should be established, which can be Jerusalem, to address the shortfall in housing faced by current residents and to approached by citizens seeking to solve their daily living issues. cater for expansion of housing needs of new Palestinian households in the future. Several different modes of housing supply should be investigated. • The implemented projects should always reflect the needs of, and be in consultation with the City’s residents, neighborhoods, institutions and bodies.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 64 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“Palestinian Economic Council for Development and Construction has 12 projects ready to be implemented in East Jerusalem, worth 98 Million US Dollars”

PECDAR’s objective, in regards the housing sector in East Jerusalem, is to As shown in the SDP 2013 for the City of Jerusalem, PECDAR has over 19 increase the number of housing units available to Palestinian by building new proposed housing projects, worth 129 Million US Dollars: units, restoring the existing ones and working at the legal level to increase the • 12 out of the 19 projects are ready to be implemented. Total value in 98 Million area allocated for housing from different categories of planning areas. US Dollars. PECDAR proposed intervention are the following: • 4 out of 19 projects are partially ready to be implemented. Total value in 13 • Provide the required funding to build houses through the provision of soft loans Million US Dollars. to officially resisted housing cooperatives in Jerusalem in order to build their • 3 out of 19 projects that are in the pre-development phase, worth 18 Million US housing projects or to finish the incomplete projects Dollars. • Provide the required funding to restore and rehabilitate old residential buildings It is worth mentioning that only 7 out of the 19 projects are proposed to deliver especially in the Old City, in order to mitigate the suffering of their inhabitants new dwellings in East Jerusalem. The intervention plan counts over 272 new and support their resilience, as well as to preserve the historical ca archeological units. 84 out of them are ready to be implemented (there are building permits), value of these building that witness to the Arab and Islamic identity of worth 4 Million US Dollars; 148 are partially ready to be implemented; and, 40 Jerusalem. need preparation. • Create a mechanism to assist the Palestinians in meeting part of the excessive Additionally, the SDP 2013 for the city of Jerusalem counts over 4 funding related costs associated with obtaining new building permits for their houses and help projects; 4 project related to maintenance and restoration; and other 4 projects them in developing constructions schemes and layouts wherever possible. related to urban planning and infrastructure. • Support and enhance the capacity of civil society organizations in the field of In the following slide it is shown a breakdown of these project per its readiness: housing. Therefore, the development strategy includes technical assistance and capacity building programs for these organizations in order to help them exam • Projects ready to be implemented. and enhance their activities. • Projects Partially ready. • Provide the required funding through individuals lending schemes to • Projects that need preparation. Palestinians who obtain a building permit for new housing units or for extension in existing units.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 65 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

Table 21 Projects Ready to be implemented Description Value in Million USD • Housing Project for Sur Baher Teachers The project consists of 6 building, containing 72 housing units. 3.5 • Individual Lending Project Provision of individuals loans for building and maintenance 10

• Housing Project for Jerusalem Cooperative of Astronomers The project consists of 12 housing units. 0.5 • Relief of Khalayleh neighborhood project Maintenance and restoration work in Khalayleh neighborhood 0.3 • Project to establish a financial firm to guarantee loans offered to Jerusalemites A financial firm to ensure payment o loans 50 • Project to support contribution payment of fines for building violations. Contribution by paying part of fines for building violations. 3 • Project for the urban planning and structural zoning unit Establishment of a unit for urban planning and community development 3.5 • Infrastructure project for Sharafat housing project (Latin Monastery) Helping around 60 families to construct the Sharafat housing project. 1 • Project “Restore Your Home by Yourself” Maintenance of old building and houses 5 • Home rehabilitation for the poor in Jerusalem Assisting Palestinian residing outside the Old City in construction and providing the poor with shelter 10 • Project to compensate for demolished houses Compensation to owners of homes demolished by Israeli Authorities. 2 • Restoration project in the Old City and the surrounding area Restoration of 53 alleys and building in the Old City 9

Projects Partially Ready to be implemented Description Value in Million USD • Housing project for Jerusalem engineers’ society The project consist of 54 housing units with all public utilities 2.5 • Housing project for Orient House employees Construction of 35 apartments 2 Cooperative housing project composed of 20 units to benefit 20 Jerusalemite families who have managed to • Housing Projects for the Jerusalem Social Society 2 obtain a building permit Cooperative housing project composed of 21 units to benefit 21 Jerusalemite families who have managed to • Beit Haninia Housing Project 7 obtain a building permit

Projects that need preparation Description Value in Million USD

• Housing project for families of martyrs and ex-prisoners The project consist of 40 housing units 2.4

Purchase of 4 dunums for a housing project in order to mitigate the housing crisis and preserve the Arab • Ras Al-Amud housing project 7.5 identity of Jerusalem • Housing project for Jerusalem physicians Purchase of 10 dunums and development of layouts for construction of 70 housing units 8

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 66 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“The Palestinian Housing Council, International Peace and Cooperation Center and Union for Jerusalem Housing Assembly are the main three players among local non-governmental organizations”

Local Non-Governmental Organizations PHC was awarded UN-habitat Scroll of Honor Award 2007 for exceptional endeavors in helping provide homes, employment prospects and bringing new hope to countless Palestinian families. Also, PHC won Dubai International Award There are plenty of non-governmental organizations working on East Jerusalem in for Best Practices 2008. several topics. Those that directly work on the housing issues are the following organizations: PHC’s objectives are: • To explore practical ways that will enable it to resolve the housing problem in • Palestinian Housing Council (PHC). Palestine. • International Peace and Cooperation Center (IPCC). • To identify appropriate mechanisms to meet the basic housing needs of the • Union for Jerusalem Housing Assembly (UJHA). Palestinian community. • To minimize the housing crisis among low and middle income families by • Al-Awda for Social and Economic Development Non-Profit Company. providing them with long term soft loans and low cost housing units. • To contribute to the lessening of poverty among Palestinian families through improving their housing environment. The Palestinian Housing Council • To participate along with national and international organizations in the The PHC was established in Jerusalem in 1991 as a non-profit institution formulation of a national Palestinian housing strategy. dedicated to help alleviating the problem of housing, and contributing the • To develop sustainable housing programs and policies along with line agencies development of the housing sector, by offering loans and providing housing in Palestine. project to low income families. • To improve the construction industry by utilizing the most modern technical In addition to overcoming the housing problems, the council raised more than 168 methods and quality standards, and introducing new building techniques and million US Dollars to contribute in solving habitations problems in Palestine. modern planning. More than 7 thousand Palestinian families have benefited by the PHC programs; 2 • To support housing and construction efforts in Jerusalem at all levels, including thousand of them in Jerusalem. the restoration of residences. • To activate the building materials trading and job creation. Furthermore, the PHC have contributed in formulation of a national Palestinian • To preserve the architectural heritage in Palestine. housing strategy.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 67 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“Palestine Housing Council is articulating tow credit system, one to support low income families to renovate their homes and a second one to encourage affordable houses in East Jerusalem”

PHC’s programs are listed below: General requirement: • Indirect Credit Program: It aims to build low cost housing units, fit with • The beneficiary and his family must be a permanent resident of the Palestinian Palestinian households’ size and income. The housing units are to be sold based districts including Jerusalem. on long term loans program for families with low and middle income status. • He, or his wife or any of the juvenile children should not be owners of Loans begin at a minimum of 28,000 US Dollars and a maximum of 45,000 US residence. Dollars. • He should be financially incapable of building his own house, that is, his • Grant Program: It aims to contribute to the reduction of poverty through small income should be low or limited. grants. This program provides grants in the maximum amount of 5,000 US • He should be capable of paying back the loan or the value of the housing unit. Dollars to families living below the poverty line in order to renovate their • He or his wife or any of his juvenile children should not have made use of homes. another previous loan from another party. • Old city Jerusalem Renovation Program: The program begun with primary • Special conditions of benefit to obtain a housing loan from PHC to use in the funding from the Islamic Development Bank (IDB) to renovate and restore city of Jerusalem. major Arab historic and residential sites in the Old City of Jerusalem. • The structure intended to be built or finished should be licensed from the The Program aims to preserve the cultural heritage and architecture in the city, Jerusalem City Council and the license should be valid. The license validity promote the local restoration practices as well as to improve the social and should not only be restricted to the period of obtaining the finishing loan. economic conditions for inhabitants. • The applicant must be the owner of the land on which the intended or existing structure is located for which he intends to obtain a loan. Additionally to these, there are other four programs whose detailed are not yet disclosed. These are: • Should not have obtained a loan for the same structure from another party. • Direct Credit Program. • The apartment should not exceed an area of more than 120m2. • Housing program in Jerusalem • The applicant must furnish all the guarantees which PHC requires from him and he should be capable of paying back the loan. • Saving Fund for Housing program • The applicant must be of limited income. • Site and Service program

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 68 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“IPCC is developing spatial outlines plans attempting to reconcile the existing situation with the demands of Israeli planning regulations and allocate for additional development necessary to meet population growth”

International Peace and Cooperation Center Since 2007 IPCC has been working with Palestinian communities in East Established in 1998 in Jerusalem, IPCC is a Palestinian non-profit policy and Jerusalem to support their demand for urban rights; to shelter, secure tenure and applied research center specializing in urban planning and community access to urban facilities and services. development. This end, IPCC has developed spatial outline plans for communities in 12 IPCC's programs are based on five main pillars: neighbourhoods (at the level of outline planning and detailed planning- detailed plans different from general outline plans guaranteed building rights and can be • Policy Research. immediately implemented-). • Urban Planning, Zoning and Development. The plans have attempted to reconcile the existing situation with the demands of • Civil Society and Community Engagement: Israeli planning regulations and allocate for additional development necessary to meet population growth. o Youth. In other words, the plans will legalise existing housing under the threat of o Local Government. demolition and provide expansion potentials for new housing, public facilities, o Urban Rights. and commercial and employment areas. Such development is key to reverse the decline of the city’s economy and living standards of its residents. o Dialogue and Peace building. IPCC has worked closely with community representatives to raise awareness of • Media. planning issues build endorsement of the planning work at the grassroots level. • Training and Capacity Building. On a technical level IPCC has established a productive relationship with the IPCC have two main programs under the Urban Planning and Community Municipality and the District Committee for Planning and Building. Nonetheless, Engagement work stream: serious impediments continue to delay the authorisation of the planning work. • Urban Intervention to Reduce Tension in East Jerusalem • Re-Planning Palestine: West Bank .

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 69 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“IPCC has over 12 outlines plans and 10 detailed plan for a total of 7,907 housing units and respond to the need of more than 40,000 Palestinian living in East Jerusalem”

Below is a list of IPCC’s on-going planning projects in East Jerusalem. The ten detailed plans most urgently require political support as these will go furthest in securing building rights and protection of homes against house demolition. Table 22 Outline Plans

Neighbourhood Population Dunum Housing Units 1 Ashkareyeh North 333 165 64 2 Ash Shayyah 7,504 300 1,443 4 765 226 153 5 Ein a Loze 2,340 387 450 6 Deir al Amud and Al Mintar 489 260 94 7 Addasseh (inc.Aqabbeh) 593 667 114 8 AthThuri 12,048 580 2,317 10 Asahel (at tur) 4,360 615 838 11 Wadi Qaddum (Hara Fouqa and Tahta) 3,432 660 660 12 HaiSweih 2,850 186 548 Total 34,714 4,046 6,681

Detailed Plans Est. Unlicensed Units Neighbourhood Statutory File Number Population Area (dunum) Housing Units Total Units Proposed (90%) 1 Ashkareyeh North 101-0211078 130 24 25 23 120 2 Ashkareyeh South 101-0260208 0 95 0 0 450 4 Ash Shayyah 520 120 100 90 300 5 Qalandia 765 226 153 138 250 6 Ein a Lozeh 14338 2,340 387 450 405 1,000 7 Deir al Amud and Al Mintar 13016 489 260 94 85 750 8 Aqabbeh 101-0177816 593 667 114 103 750 9 Asahel 468 120 90 81 200 10 Wadi Qaddum 101-0260224 1,040 135 200 180 600 Total 6,345 2,034 1,226 1,103 4,420

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 70 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“The Union for Jerusalem Housing Assembly is expecting to deliver over 530 new and affordable dwellings all across East Jerusalem”

Union for Jerusalem Housing Assembly As part of its efforts to promote affordable housing, the Union for Jerusalem The UJHA is a non-profit organization registered with the Palestinian Ministry of Housing Assembly is working with banks and micro-finance institutions to facilitate access to long-term financing strategies with low-interest for Palestinian Interior and Israeli Ministry of Interior, working in East Jerusalem with the mission to provide affordable housing for Palestinians Jerusalemites. citizens in East Jerusalem. The Union has held several meetings with the Islamic Development Bank and banks operating in Palestine to devise an operational Moreover, the UJHA is establishing a legal and engineering unit within its mechanism for providing long-term loans, with reasonable preconditions that structure to provide legal assistance and protection to land owners in their land minimize the risks for financing institutions yet feasible for ordinary citizens to development efforts. fulfill. The UJHA overall goal is to find practical means and solution that help solve the Below is the list of project the Union of Jerusalem Housing Assembly has been housing crisis in East Jerusalem through: involved with cooperatives, since its establishment.

• Assessing residents in obtaining permits and reduce its costs and administrative procedures Project Name # Units Progress Funding Source Table 23 • Enabling owners and investors to construct housing cooperative across east Sharafat 12 90% El Awda for Housing Jerusalem as affordable and cost effective models of housing for the city’s Mukabber I 16 50% El Awda for Housing residents. Mukkaber II 7 35% El Awda for Housing • Contributing to land planning and development initiatives, and advocate for Mukabber III 15 40% El Awda for Housing their implementation for residential, commercial and public service purposes. Beit Hanina 15 50% El Awda for Housing • Facilitating access to credit and loans for constructing housing projects, El Farouk 21 50% El Farouk Association for Jerusalemites Teachers purchasing housing units or lands. Sur Baher 86 45% Housing Association of Sur Baher Teachers • Implementing housing projects through cooperative models across East Bay El Makdes 37 45% Bayt El Makdes Housing Association Jerusalem. Jeruaslem Eng. 26 40% Al Quds El Shareef Housing Associations • Advocating for collective efforts directed towards solving the housing crisis in Project the city and streamlining efforts through policy making in this regard. Shuafat 135 40% Shuafat Housing Association. Total 530

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 71 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“The UJHA’s Legal and Engineering Unit will assist over 500 families annually, with the objective of effectively reducing the cost associated with building”

The UJHA adapts three categories in working with cooperatives: Additionally, the UJHA is working on a two year project that supports the 1. Cooperatives that has the funds and ability to get financial for housing.: establishment and operations of a legal and engineering unit that will provide the following services: In many instances, disputes arise in these cooperatives related to cost of building. The UJHA will oversee the work of the cooperative, ensuring that Helpline for Advisory Services real cost is properly documented. Additionally, UJHA will assist them in Available twice a week for the public to get advisory services on a number of reaching out to donors or low interest lands to buy housing units. legal or engineering issues. These services will be provided with an average of 2. Cooperatives that have the financial capacities: two hours per case. These cooperatives enter into agreement with Al-Awda Financing Company to Legal Advice and Assistance hand over the housing units fulfilling all safety and decent standards. The The services will be provided to over 150 cases on matters such as land UJHA will assist them in seeking grants to subsidize the cost of purchase. registration, tax and fee exemption, reducing property taxes, settling land 3. Cooperatives with middle income: disputes. In addition, 50 cases will be followed through litigation and petitions. The cost of a housing unit, in collective development, is estimated to be Engineering Counseling and Assistance 280,000 US Dollars. Members of these cooperatives can only afford around Services will be provided to around 150 cases that will include areas such as 130,000 US Dollars in four years, while having the financial capacity to pay procedures for obtaining permits, increasing building ratio, land zoning and re- 1,500 US Dollars per month. This means that they are usually still short of parcelization as well as providing advice on architectural and civil architectural around 149,000 US Dollars designs. The UJHA states that unfortunately Palestinian banks do not offer loans even Moreover, the engineering unit will provide substantial direct assistance to if these cooperatives members are able to provide the houses as collateral, some of the cases reported, which will include conducting land surveys and under the pretest that Jerusalem is under Israeli Administration and thus there accessing land files from the municipality. would be no guarantee from them by law. Studies and Publications Bi-annual newsletter will be produced and will include news updates and relevant important for land owners and developers.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 72 the Quartet. Stakeholders in the Governmental and Non-Governmental Sector

“The Mount of Olives Housing Project will be leased to individuals, couples and families at subsidized rates, providing a much-needed affordable housing option within Jerusalem enabling many Palestinian Jerusalemites to maintain their Jerusalem residency and rights”

The newsletter will include updates on the housing sector and housing projects, Al-Awda for Social and Economic Development Non-profit Company new services procedures pertaining to land development and housing as well as The mission of Al-Awda financing company is to assist Palestinian citizens in messages that advocate for more affordable housing in East Jerusalem. East Jerusalem in accessing long term loans up to 180 months at low interest that Moreover, a services procedures guidebook will be produced that entails all do not exceed 1.8%, with accepting the housing unit as a collateral. services guidelines, procedures tips and references for land development and Al-Awda Financing Company is distinguished by its ability to accommodate the housing. needs and contest of East Jerusalemites, while serving to the special status and In addition to the above, the UJHA is also developing a new project with the requirement needed for cooperative housing associations. purpose of developing the first East Jerusalem “Land Database”, highlighting their legal status, owners and restrictions and opportunities for planning and development in these areas and, a second one. International Non-Governmental Organizations

Table 24 Most of these organizations work towards the welfare of the Palestinian and Legal Units Engineering Unit tackle issues more related to the protection of human rights such as demolition and displacements and urban planning. Nevertheless none of them has developed Registration Procedures Permits mechanisms to boost the real estate and housing sector in East Jerusalem.

Fee Exemption Building ratio An exception is that The Lutheran World Federation (LWF), the Evangelical Lutheran Church in and the Holy Land (ELCJHL), and the Kaiserin Auguste Victoria Foundation (KAVF) are addressing the need for housing through Property Taxes Land Zoning the construction of 84 apartments on the LWF property. An interesting opportunity for Real estate developers is that through the match Land Disputes Civil and Architectural grants of the Palestinian Market Development Program (PMDP) and the Design Legal Pleadings and Jerusalem Grant Facility (JGF), this could fund market studies to determine the Petitions exact number of businesses in the formal and informal sector and customer profiling per district, new staff hiring, training labor, marketing, purchasing Source: Union of Jerusalem Housing Assembly, Structure of the Legal and Engineering Unit. supplies and equipment.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 73 the Quartet. Value Chain Scheme of the Housing Sector in East Jerusalem

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Value Chain Scheme of the Housing Sector in East Jerusalem

“There is forward and backward integration in the housing market sector. Project developers are becoming investors, and investors are developing housing projects”

PRIMARY FUNCTION ON THE REAL ESTATE AND HOUSING SECTOR

• Residential Use Ownership Finance Construction Transaction Usage • Commercial Use • Industrial Use

• Builders • Self Finance • Contractors • Real Estate Agents Financial capacity and sources are secured for the majority of the interviewees. 83% of them stated that the housing projects • Property • Investor • Suppliers • Brokers are self-financed. This could be either co-financed between Developers developers/builders, or executing the process of sales in the • Investors • Banks • Eng. and Construction Firms inception phase, allowing self-financing. In the construction stage, only investment companies recur to a tendering process among construction companies, while real Not only Real Estate Developers, strictly, but other players such as land surveying services estate developers, builders (individuals), architectural firms companies, architectural firms, construction companies and investment companies move backward have their own workers. and forward, along the value chain. Furthermore, 67% of the respondents confirmed that they take The ownership stage is constituted by inception and design functions. Through the conduction of the responsibility of the maintenance of building and do not structured interviews, it was noticed that not only property developers are responsible for outsource to management firms. developing the housing sector in East Jerusalem. There is a large number of individuals/landlords, investment companies, architectural firms, construction companies that own housing projects. As a result of the lack of professionalism among real estate agents and brokers, it was predictable that a vast majority of On the design functions, the field work exercise revealed that architectural firms are not the only transactions (sales and post sales services) are carried out by the player in the design of building structures, construction companies have in-house employees doing property developers themselves. the work of surveyors and architects. 77% of the interviewed players have stated that they outsource the design of their housing projects.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 75 the Quartet. Value Chain Scheme of the Real Estate Companies

“There are plenty numbers of suppliers of building materials and constructions workers from West Bank, supplying property developers in East Jerusalem”

VALUE CHAIN IN REAL ESTATE COMPANIES

CLIENTS

Business Research and Sale and Post Sale Real Estate Management Construction Development Opportunities and Services (New Real Estate Contracting Opportunities)

Due to the constraints and challenges in the housing sector in East Jerusalem, once a real estate opportunity is identified, the marketing and sales process take place so that the “work” is sold before beginning and tension is avoided in the matching of supply and demand and financial unrest. Within the contracting process, it can be distinguished the following phases: Selection of contests to bid; Bidding Process; and, Award. As previously mentioned, only investment companies follow this process. One of the major challenges they faced is that Palestinian construction companies are not formalized and also the lack of professional data when bidding for projects tendered. And hence, they positioned themselves to a lower level in comparison to Israeli firms who bid as well. In the construction stage, the key functions identified are the following: Initial approach: provision of resources for startup; Management and obtaining permits and licenses; Management and general contracting facilities; Organization of areas and means for collection; Definition of specific facilities; Organization provision and receipt of materials; and, Technical planning and economic planning. Sale and after sale stage includes not only delivery of housing units but also delivery of guarantees of these housing units. Once a project is built and almost sold, real estate companies move forward to identify new real estate projects.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 76 the Quartet. Case Studies Beit Almaqdes Engineers Housing Cooperative Association – Collective Development Initiative

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. Beit Almaqdes Engineers Housing Cooperative Association

“54 Engineers / Architects and their direct families will be provided with adequate living conditions in new housing units in the Beit Hanina area within the East Jerusalem boundaries”

Project Background • Design Committee: to follow up on all issues related to the design of the At the end of 2006, the Palestinian Engineers Association in East Jerusalem housing units, their functions and that all technical procedures are taken into initiated the First Housing project for Engineers in East Jerusalem due to the consideration. continuous concerns from the Presidents’ Office and the Association of the • Permit Committee: to follow up on all issues related to the units permits with housing sector situation in East Jerusalem and specifically housing for Engineers. Jerusalem municipality. The association aimed to assist a number of Jerusalemite Engineers living in • Fund raising committee: to seek funding opportunities from internal donors Jerusalem to improve their living conditions and to assist them in their economic (PA office, NGO’s, UN Agencies) and other external donors (Arab donors, EU, situations specifically due to the high rents of apartments in Jerusalem and its etc) surroundings. Furthermore, as per the PA regulations in regards to the work and establishment of Thus, all Engineers residing in Jerusalem had to fill in application forms community based organizations, the Association has established and registered indicating the reasons they need to have a private housing unit; the application what is called “Beit Almaqdes Engineers Housing Cooperative Association” in assisted the Association to take decisions regarding the number and names of the PA in order to be able to implement its activities and follow up legally as per Engineers that will be part of the First Housing project. regulations. Only 54 Engineers and Architects were chosen for the project although the Project Description number of engineers eligible was much more than that. However, the 54 engineer The project is located on four contiguous plots of land in Beit Hanina were chosen according to different criteria and priorities were given to some due neighborhood. The plots are certified and are part of the approved structural plan to : of the Jerusalem Municipality. The plots are registered as per numbers “No. 7466 • Lack of private housing owned by the engineer applicant. and 7466 A,” which are located within the basin of Aqaba No. 30607 in Beit • Household characteristics such as age, number of children, income. Hanina. The plots are near the Nusseibeh family housing project also located in Beit Hanina. In order to start with the plan and the implementation of the project; the The area of ​​the four plots of land equals to 7,395 square meters after the Palestinian Engineers Association has developed a number of committees to follow up on the project phases and steps required. The Association has developed deduction of nearly 4,000 square meters of the original area for public benefit as 4 committees which consisted of different engineers: per the Jerusalem municipality urban plan law, this decision has added the burden of the costs of land on the engineer involved in the housing project. • Land Committee: who is responsible for searching for suitable land and do all the necessary actions to purchase the land. Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 79 the Quartet.

Beit Almaqdes Engineers Housing Cooperative Association

“A new residential neighborhood is developed with Public areas (parks, parking areas and green areas) as well as public facilities and improved the socio-economic situation of the related engineers as they will not have to pay rent”

The project plan is to include four separate building units, these buildings will The Engineers participating in the project are obliged to start the construction consist of a total of 54 housing units. works of the buildings within a maximum period of 1 year; if not, the issued The project has gone through a lot of phases, the below points summarize these permits would be canceled and the process will have to be repeated again. The phases with their status: Association is also in the last phase of process of issuing the last permit. • Phase 1 (completed): Selecting eligible engineers according to specific criteria Project Cost Breakdown • Phase 2 (completed): “Buying the land” and all related actions are completed, Table 25 Unit cost (US$ / Total cost in all 54 Engineers have completed their financial obligations on the land Item Area (m2) purchase. m2) Million USD Land cost (for 4 plots) 7,395 - 2.268 • Phase 3 (completed): the establishment of “Beit Almaqdes Engineers Housing Cooperative Association” as per the PA regulations to enable the Association to Permit / license cost for 4 buildings - - 1.9 Construction of 4 buildings advocate the project to the donor community and seek potential funding. The 13,000 300 3.9 Association has been established for more than three years. Structure work Finishing works of 4 buildings 9,000 500 4.5 • Phase 4 (completed): “Design of the project” with all related drawings is Not including Parking and storage finished. The design was done through a licensed Israeli / Palestinian Design Finishing works 4,000 250 1 Engineering Office. The Engineers participating in the project have paid also of Parking and storage stairs the cost of the design to the office. The architectural design of the buildings is Green areas and parks, public areas / walls, and - - 0.8 based on the concept of Green architectural buildings. retaining walls Pavements / construction of streets with the - - 0.548 • Phase 5 (46 housing units completed) / 8 housing units pending): “the construction of basic infrastructure issuing of construction permits as per the Jerusalem municipality regulations”, phase is currently ongoing. Elevators - - 0.25 Three permits have been issued for three buildings by the municipality with a Generator 630 KVA Qty (2) 75,000 0.15 total cost of 1.5 Million US Dollars. Cost of lawyer and design office - - 0.2

Total Project Cost 15.516

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 80 the Quartet. AL Quds Holding - Al Taleh Housing Project

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. AL Quds Holding - Al Taleh Housing Project

“Al Taleh Project intends to develop a distinctive housing complex; provide green spaces; create a residential community; reflect the character of Jerusalem life; support the real estate sector in East Jerusalem; support and meet the needs of Palestinian young families”

Project Brief Al Quds Holding Company offers the following: Al Taleh is the first housing project for Jerusalem Holding Company. It is located • Registration of the apartment in the Land Registry in the name of the in Ras al-Amud area and it is less than 7 minutes away from the old city. beneficiary, this will maintain the beneficiary's right as the land owner and will The AL-Taleh Project is constituted by 34 housing units distributed among 4 enable the beneficiary to turn to many financial institutions that offer mortgage buildings. Within the first phase, 16 apartments are to be deployed and in the loans according to their types. second phase 18 dwellings are to be delivered. • Assist the beneficiary in obtaining mortgage loans by providing all necessary The land which is about 3 dunum has the proper legal requirement, building documents. permits and Tabo (land registration) so households can enjoy ownership. • Delivery of ready apartments bought by the beneficiary including best finishing The Project intends to develop a distinctive housing complex; provide green specifications and according to the beneficiary's desire. spaces; create a residential community; reflect the character of Jerusalem life; • Processing of all public utilities including parking spaces, patios, a staircase and support the real estate sector in East Jerusalem; support and meet the needs of an elevator. Palestinian young families. • Legal construction and delivery of the apartment as well as the apartment's The Project will be implemented in two phases: license with permission Works. Phase 1: Within this phase, the entire space given to land exploitation is currently equivalent to 50% of the land available and comprises over 16 housing units to be delivered after the fourth quarter of 2014. This phase, due to license issuance, took three years. Phase 2: Within this phase, the entire space given to land exploitation is 160% and comprises over 18 apartments.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 82 the Quartet. AL Quds Holding - Al Taleh Housing Project

“Al-Taleh Project is an attractive initiative that highlights the profit potential of developing multi-family buildings. Once apartment are built and sold, gross profit would exceed the 12 million US Dollars”

Project Details Table 26 # Floor Space Terrace Garden Staircase Parking Lot Storage Area Final Price

m2 m2 m2 m2 m2 m2 USD 1 96.4 - 128 25 15 6.6 367,303 2 108.5 - 117 25 15 6.6 397,735

3 104 2.8 - 25 15 8.1 337,504 4 96.3 12.6 40.1 25 15 5.35 346,051 5 101 - 135 25 15 6.3 383,720 6 107 11.2 53 25 15 5.3 380,904 7 107 11.4 43 25 15 6.3 377,032 8 95 14.6 152 25 15 6.3 394,588 9 101 2.6 - 25 15 5.7 327,892 10 110 - 170 25 15 6.3 425,355

11 107 7.8 64 25 15 6.5 381,172 12 107 2.6 - 25 15 5.7 345,382 13 107 2.6 - 25 15 5.7 345,382 14 90 2.6 - 25 15 6 295,900 15 105 4.2 - 25 15 6.3 341,986 16 108 2.6 - 25 15 5.6 348,273

The table above provides detailed characteristics of the dwellings within phase 1 The average of floor space in the Al Taleh project is about 103m2. The average ready to be sold. Almost all apartments benefit from the following amenities: price per square meter is about 3,500 US Dollars. terraces, gardens, parking lots and storage areas. Only 3 apartments out of 16 Only from phase 1, Al Quds Holding is expecting a gross revenue of about 5.7 have no terrace and 7 out of 16 units have no gardens. Million US Dollars. The average size of amenities per dwelling is as follow: terrace 4.9m2; garden With an average price of 362,261 US Dollars, it can be predicted that in Phase 2, 56m2; parking lots 15m2; and store 6.2m2 gross revenues amount to 6.5 Million US Dollars.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 83 the Quartet.

Conclusion and Recommendation General Recommendation to revive the Housing Market

“Social Investment should be promoted through local and international organizations with the objective of increasing the positive social impacts derived from affordable dwellings. Not undermining the importance of the community involvement when actions are articulated”

Reviving the housing sector in East Jerusalem is a complicated task, considering the wide range of obstructions to the development of the sector at different stages of the Value Chain: Development and Delivery. In the development stage community planning and collective development seem to be the most suitable responses

Community Planning Collective Development

As previously discussed, East Jerusalem lacks an Collective development, where groups of available land and an adequate infrastructure, which households build on a single site together, offers makes the need to formalize urban planning to solutions for both affordable housing and provision rehabilitate existing units and enable new housing of public land. It is assumed that collective development. development overcomes sovereignty issues of public land by enabling the community to maintain In order for this to happen, there is a need for the ownership. redistribution of ownership from private to public that will bring more public spaces, facilities and Long-Term Such development has been implemented with high infrastructure, while improving transport networks Strategies on Real success. E.g. Beit Almaqdes Engineers Housing and generating commercial and employment Project, and Physicians Housing project among opportunities. Estate and Housing others. Therefore, the participation of communities to work in unison with NGOs and Israeli Authorities with a common vision and objective is required.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 85 the Quartet. General Recommendation to revive the Housing Market

“Public institutions and International organizations should work on creating a mechanism of funding; soft loans and individual lending schemes to promote land registration, house purchase and building, respectively”

In the delivery stage, social investment and international support seem to be the most suitable responses.

Social Investment International Support

Social investment is a financial mechanism articulated Urban Planning, Zoning and Development used to create social impact with the main purpose of • Create wider consensus with Israeli practitioners in securing loans at low interest. regards to urban planning and policies. The entities that provide such funds are mainly: non- • Increase lobbying at political level to support needs of profit organizations, housing bank, charity and social Palestinian Jerusalemites and planning efforts. banks among others. In East Jerusalem, there are few organizations that provide this financial support to some • Increase international focus on planning project and the extent authorization process with the Municipality and the Ministry of Interior with particular concern to: Social investment, beyond securing loans at low interest, could fund a large-scale housing project along with its o Restriction applied to the transfer of private lands to related public infrastructure, which promotes affordable Long-Term public facilities. housing, as such projects commonly benefit from Strategies on Real Estate o Restriction on land zoned as green or open spaces which economy of scales. and Housing could provide schools, libraries and other city level public facilities o Obstacles imposed by the Municipality regarding submission of community plans. Delivery Stage • Facilitate the formation of financial models that are better suited to East Jerusalemites financial capacity such as a long term loans with low interest, and grants for low income households.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 86 the Quartet. General Recommendation to revive the Housing Market

Urban Planning Zoning Licensing Construction Hand Over

Israeli • Unlock available public land on the • Unlock in whole or part of the East Jerusalem • Reduce taxes to make permits more • Promote public and social housing Authority West and East of Jerusalem for new land expropriated for new Palestinian affordable. project for Palestinian in existing or Palestinian Neighborhoods. Neighborhoods. • Minimize bureaucratic procedures in order new Palestinian Neighborhoods • Develop the urban planning of • Complete the zoning of areas yet not tackled. to agile the process of obtaining a response. Palestinian neighborhoods with the • Increase the percentage of land available for • Clarify the criteria established to grant or cooperation of the community and construction to 20%, by rezoning green areas. deny building permits. I/NGOs. • Collaborate with the communities and NGOs • Develop an unchallenging payment system. to proper categorize the land usages. • Upgrade the public infrastructure, prioritizing neighborhoods with higher demand. • Launch a regulatory process to legitimate unpermitted Dwelling.

Community • Formalize neighborhoods’ CBOs • Advocate for the proper zoning and rezoning • Identify the basic infrastructure upgrades • Organize in groups to collectively and People • Work closely with I/NGOs and of the land in East Jerusalem and restore of and advocate. develop housing projects. Israeli Authorities to determine the expropriated land. • Promote housing project on land own expansion strategies by multiple individuals. • Develop joint planning. • Update and legitimate the ownership of land.

NGOs (Local • Articulate public advocacy efforts • Collaborate with the communities to proper • Identify gaps in infrastructure and advocate • Provide financial support to builders • Provide financial support to home buyers and to unlock public land for new categorize the land usages for their adequacy. and individuals through making through long term soft loans and grants. International) Palestinian neighborhood, not • Advocate for the restoration of the • Rehabilitate infrastructures of communities available soft loans for constructions, necessarily in the East Jerusalem. expropriated land. with high density. reconstructions, rehabilitation of • Develop detailed plan of existing dwellings. Palestinian Neighborhood in • Provide the financial support and/or collaboration with the Municipality. fund to large scale low income • Propose and develop plans for new residences ($170,000 per unit) areas and new neighborhoods within Jerusalem limits.

Palestinian • Support the efforts of NGOs and • Support the efforts of NGOs and Community • Provide financial support to rehabilitate • Provide financial support to builders • Provide financial support to home buyers in the Authority Community leaders, financially and leaders, financially and politically infrastructure in communities in a critical and individuals. poverty lines through long term soft loans and politically. situation. • Purchase land and unlock it for grants. This with the collaboration of the • Support financially the efforts to • Provide legal advisory services to East affordable housing projects banking sector and donor community. officially register the lands. Jerusalemites.

Developers and • Provide alternatives options for purchasing such Contractors as leasing, easy installments. • Normalized profit margins to meet citizens’ purchase power. • Optimize cost of material and administrative and managerial fees.

Banks • Ease administrative procedures • Equal interest rate loans to Israeli banks interest rates that is much lower than the Palestinian.

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of 87 the Quartet. Annexes

Real Estate and Housing Sector Opportunity Analysis - Al-Quds Economic Forum and the Office of the Quartet. References

List of Interviews Document Title Author Year 1. Beit Almaqdes for Construction & A Blue Print for Addressing the Global Affordable Housing Challenge McKinsey Global Institute Oct. 2014 Investment Coalition for Jerusalem, The Master Plan of Jerusalem 2000, Analytical Study, Part One Souad Nasr-Makhoul Jun .2006 2. PRICO 3. Haya Real Estate Construction and Housing Conditions in Israel 1985-2010 Israeli Central Bureau of Statistics Dec. 2011 4. Al-Quds holding Draft National Housing Policy v.3 Ministry of Public Work and Housing Sept. 2013 5. Amar Group – Real Estate Demography , Geopolitics, and the Future of Israel’s Capital. Jerusalem’s Proposed Jerusalem Center for Public Affairs 2010 6. TAICO Master Plan 7. Union of Jerusalem Housing Assembly East Jerusalem Housing Review International Peace and Cooperation Center 2013 8. Palestinian Economic Council for Development & Reconstruction East Jerusalem Key Humanitarian Concerns, update Aug 2014 OCHA Aug 2014 (PECDAR) Jerusalem Facts and Trends Jerusalem Institute for Israeli Studies (JIIS) 2011-12-13-14 9. Rajab Abu Asab and Sons Company Jerusalem Statistical Year Book Palestinian Central Bureau of Statistics (PCBS) 2014 10. Sami Awadallah Construction Company Local Outline Plan Jerusalem 2000, Report N.4, The Proposed Plan and the Main Jerusalem Municipality Aug. 2004 11. Ali Brothers Co.Ltd Planning Policies 13. Dour for Engineering and Planning Private Sector and Economic Development in East Jerusalem , Final Report ACE International Consultants Dec. 2012 14. Rajab Abu Asab and Sons Company Report on Israel Settlement in the Occupied Territories. Bimonthly Publication, Vol. 24, Foundation for Middle East Peace Mar-Apr. 2014 15. The National Bank Number 2 16. Islamic Development Bank Strategic Plan for Developing the Housing Sector in Palestine Ministry of Public Work and Housing 2010 17. The Cairo Amman Bank State of the Nation Report. Society, Economy, and Policy in Israel TAUB Center for Social Policy Studies in Israel 2014 18. Mustafa Abu Hamad

19. Moa’yad Amouri The Jerusalem Master Plan : Planning into Conflict Francesco Chiodelli 2012 20. Ibrahim Abukhdair The Lutheran World Federation Annual Report The Lutheran World Federation 2013 21. Fouad Dakak The Palestinian Economy in East Jerusalem: Enduring annexation, isolation, and United Nation Conference on Trade and Development 2013 22. Samer Mustafa disintegration

23. Samer Shqirat Violation of Civil and Political Rights in the Realm of Planning and Building in Israel and Bimkom – Planners for Planning Rights Sept. 2014 the Occupied Territories

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