The price of Israeli homes has risen by 24 per cent over the past two years, according to a Bank of Israel (BOI) survey.

In recent months price rises have accelerated, with the value of the average home rising by an annualised rate of 15 per cent in August, according to the Central Bureau of Statistics.

For overseas buyers, according to Adina Haham, CEO of Israel’s Anglo-Saxon real estate chain, price rises have been even sharper: “In recent years the Israeli real estate market has started basing prices on shekels rather than dollars. The strong shekel means foreign buyers are paying a lot more.”

Since 2007, the pound has depreciated by over 25 per cent against the shekel, so the price of Israeli homes has risen by 50 per cent in sterling. Israeli homes trebled in price between 1983 and 1997, and were then flat for a decade.

The BOI credited the demand to the recession. With very low interest from banks on deposits and mortgages, and fears about volatile stock markets, Israelis are investing in second homes. A survey by assessor Levi Itzhak found that 50 per cent of Israeli homes being purchased are for investment.

“I can believe that figure from what we see,” said Ms Haham. “Most of these homes are relatively inexpensive and in areas not so popular with English-speaking buyers. Even so, prices in Jerusalem, Netanya, Ra’anana, Modi’in and elsewhere that are sought by British buyers have risen by the average because in these locations there is high demand and little land available.”

Dwindling land resources are another factor, according to the BOI. However, at the high end of the market, prices are falling.

“The recession means the wealthiest have less money to spend,” said Ms Haham. “We have very expensive homes in Jerusalem’s German Colony and Herzliyah Pituach where we have lowered prices.”

Defence Minister Ehud Barak, for example, last year put his five-room apartment in Tel Aviv’s Akirov Towers, which he bought for $2.5 million in 2003, on the market for $11 million. With no buyers in sight, Mr Barak has cut the asking price to $8 million.

Eighteen months ago the average home in an expensive Jerusalem neighbourhood sold nine days after going on the market. Today it takes 33 days.

Less expensive homes, however, are being snapped up ever more swiftly. Mr Yitzhak found that the average home in Jerusalem is sold 23 days after coming on the market, 17 days in North Tel Aviv, 29 days in Ra’anana, and 27 days in Modi’in.

Ms Haham agreed with the BOI that house prices will continue to rise in 2010 but at a much slower pace.