Foreign investors are buying up apartments in Talbiyeh and other prestigious areas of the city centre, driving real estate prices up and changing the social fabric of the city. -- PHOTO: AP

Foreign investors are buying up apartments in Talbiyeh and other prestigious areas of the city centre, driving real estate prices up and changing the social fabric of the city.

The buyers are mainly Orthodox Jews from the United States, France and Britain, who use the homes for short vacations or as a possible escape from rising anti-Semitism in Europe. The result: Many of the homes are vacant for most of the year.

'Most of the apartments in my building are empty and I only have a few neighbours left on the entire street,' said Mr Avner Haramati, a longtime Disraeli resident. 'It has become a ghost town. The only movement you see is that of construction workers building new homes for people who will never live here.'

A recent study based on Jerusalem Municipality data found 20 per cent of apartments in the centre of the city are now owned by foreigners, including 7,500 left abandoned most of the year.

Last year, just over 20 per cent of the 250 apartment purchases in the area were made by foreigners.

'By 2015 parts of the city will be 50 per cent empty and that's a conservative estimate,' said Mr Jonathan Levirer, an urban planner who conducted the study. Mr Levirer, 47, founded his consulting firm last year after retiring from 20 years at the Jerusalem municipality, where he was in charge of the city assets department.

Mr Levirer, who lives in Talbiyeh, said he decided to do the study after he saw how empty his neighbourhood had become and when friends asked him 'where have all the people disappeared to?' He recently presented his report to city officials. He hopes it will eventually yield an affordable housing plan. A City Hall spokesman said officials are taking the study seriously.

There are 186,000 apartments in Jerusalem, home to some 733,000 people, according to city records. Jerusalem is Israel's poorest city, due to the large numbers of ultra-Orthodox Jews and Palestinians, communities with high poverty rates.

However, housing prices are skyrocketing, seemingly immune to the global credit crisis and economic slowdown. Foreign demand has been a key reason.

'Property prices in Jerusalem in areas where they are buying have increased by up to 60 per cent since 2002,' said Mr Avi Mizrahi, a spokesman for the Bank of Jerusalem, which caters to foreign buyers.

Demand has been focused in exclusive neighbourhoods like Talbiyeh, Rehavia and Yemin Moshe, which are close to the downtown and the Old City. About half a dozen luxury projects are under construction in these areas, marketed almost exclusively to foreigners. A renovated three-bedroom apartment in these neighbourhoods can easily fetch upwards of US$1 million (S$1.4 million), compared to US$450,000 in 2002.

'They are killing Jerusalem. Without residents who purchase goods and pay taxes year round, Jerusalem won't be able to support itself and will eventually collapse,' said professor of urban and regional studies Shlomo Hasson of Hebrew University. 'It's an urban nightmare, the city centre is supposed to be where young people thrive and where the creative class fuels the city with ideas and commerce but now it is deserted.'

With these areas out of reach for most Israelis, Mr Mizrahi said there has been 'a domino effect on the rest of the city, raising prices in less desirable neighbourhoods up by 40 to 50 per cent'. A modest three-bedroom apartment in some working-class neighbourhoods now starts at about US$270,000, up from US$180,000 in 2002. This is a hefty sum in a country where the average salary is about US$25,000 a year.

Rents have also soared. A three-bedroom apartment now costs about US$1,000 a month, up from US$600 in 2004, according to real estate agents.

A recent report conducted by the Israeli Parliament's research department found that 30,000 young people left Jerusalem last year alone due to lack of affordable housing.

Mr Eran Gigi is part of this exodus. In 2003, the 31-year-old chef lived in downtown Jerusalem close to the bistro where he worked. He thought US$400 a month for the decrepit three-room apartment was a bit expensive, but was willing to pay the price so he could live 'where the action is'.

Mr Gigi left the apartment in 2005 when his landlord raised the rent to US$700. 'I searched for months for a new place to live but everywhere was far too expensive and I had to leave the city,' he said. Today, he said, his ex-fiance lives there for US$900 a month.

Mr Gigi now pays US$430 a month for a renovated two-bedroom ground floor apartment with a big garden in Beit Zayit, a quiet rural community about a 20-minute drive from Jerusalem.

In Abu Tor, which overlooks Jerusalem's Old City, a Bauhaus-style duplex with eight rooms, a whirlpool bath and garden complete with fish pond and fruit trees is currently on the market for US$2.2 million.

'People with American and French accents are constantly knocking on my door and offering me a blank cheque to fill out for my house,' said Mr Yishai Amoyal, who owns a nearby home.

He said his spectacular view from his balcony of the Old City is the reason why he turns them down. None of his neighbours are permanent residents, he said.

Ms Corinne Davar, a real estate agent who has sold Jerusalem properties for 25 years, said such talk of ghost neighbourhoods is overblown.

'Many of these apartments are used by the owners' families or rented out when the owners are away,' she said.

Ms Davar said most American buyers are Orthodox Jews who want a place in Jerusalem for religious reasons while rising anti-Semitism in Europe was the main factor for investments by French and British Jews.

Ms Monique Corenfeld acknowledged she had 'a serious moral dilemma' when she purchased her property in Rehavia 20 years ago.

At the time, she was living in her native England.

'On one hand we love Israel and want to spend time here and invest in the country, and on the other we know it causes a serious problem for people who live here,' she said.

Over the years, the apartment was used by her son and was hardly ever empty. She said she finally moved to Jerusalem for good last year to be near her children. -- AP