OPPORTUNITIES TO INVEST IN ISRAELI REAL ESTATE

By Archie Leonard

It’s no longer a secret that Israel’s economy continues to grow at a promising rate.

Having one of the highest concentrations startups in the world, after Silicon Valley, Israel has become known as the “Startup nation”. Corporations like Google, Apple, Facebook, Microsoft, Intel, Yahoo!, Motorola, HP and more have ventured to establish facilities across the state.

Yet only a few small investors are taking advantage of Israel’s  Startup’s booming real-estate market.

Brief Background

Since its official establishment in 1948, Israel has had a gradual increase in housing value. The largest jump occurred during the years 1990-1995 and was predominantly due to large scale Russian immigration, with more than 1.5 million new citizens needing housing (25% of the local population) causing prices to rise to new heights. In response, the Israeli government launched a massive building effort, mainly on the outskirts of major cities and in outlying areas.

In 1997-2007, with a sudden surplus in housing, prices dropped. But in 2008, the market skyrocketed to heights no Israeli could have dreamed of. Starting at $260,000 and going up to $428,000 in only 9 years!  It seems that this property bubble might soon burst, but by examining all aspects on the market in greater depth – the opposite is likelier.

Land ownership

A vast majority of the land (92%) belongs to the state, the other 8% is privately owned by individuals and various organizations such as the Greek Orthodox Church.

The government leases its land to citizens for 49 or 99 years, in what is called a “generational lease”. In order to ensure future sovereignty over the land, the government has a policy that excludes non-citizens from leasing government lands under similar terms.

Privately-owned land is registered as TABU.  The State of Israel was founded upon the infrastructure of the British mandate. All land registrations from that period are valid until today. Some of the land is even registered since the Ottoman Empire that preceded the British mandate.

 

Residential Housing

The official house price index, published by the Office for National Statistics, tracks the prices paid for homes and is published every few months. The latest figures, for October 2016, show that across Israel prices were up by 8%.The average price for a residential home was $428,000.

Buy to let

Mortgage interest rates change all the time. Reaching their lowest level in August of 2015 at prime+2.26% (3.86%).
As of today the average mortgage stands at prime+4.14% (5.74%)

The average monthly yield on investment properties is 4%-5%.

Commercial

The leading shopping malls showed an average growth of 8.2% in NOI (income operating net) in 2016.
The parameters for assessing the office sector also changed direction in 2016 and indicate growth. Business GDP grew by 2.4% in 2016.

Investment in fixed assets increased by 3.11% following a standstill in the previous two years.
Exports of services increased by 3%.

With a large contribution being attributed this year in the high-tech sector, which tripled the volume of exports and led to an increase In demand for office space from high-tech companies, but also from professional providers such as solicitors.

Similar to the trend of the trading centers, in the office sector, we see an increase in NOI alongside a much more moderate increase, in the rent.

However, the rates of occupancy and demand for new or veteran office space and high quality offices are high.

 

Leading construction companies have confidence as they continue the development and construction momentum, even in the busy central area.
The outlook of most income-producing real estate companies, focused on Israel, continues to be stable in the short term.

The average monthly yield in commercial property is 5%-7%.

Tel-Aviv Metropolitan and Jerusalem – Solid investment.

According to the central Bureau of Statistics, 30% of Israel’s population live in a region called “Gush-Dan” that includes the metropolitan area of Tel Aviv. This center has been growing at a rapid pace – attracting young Israelis and buyers from all around the world including new immigrants.

Jerusalem has as well a rapid growth propelled by religious communities and new immigrants. Both cities offer good and stable real-estate investments. According to real-estate expert Dr. Eli Borukhov “Tel-Aviv has the same aspects of growth as New-York and Beijing do”

Useful info on buying property in Israel from abroad:

Fees and Taxes:

  • Government tax on residential properties – 8% (until 1.42m$, above will be 10%)
  • Government tax on commercial properties- 6% + VAT (17%)
  • Lawyer fee for foreigners purchasing land – 2%
  • Broker fee – 2%
  • Additional fees – 0.5%

Money transfer:

  • Most banks allow money transfers via IBAN numbers from foreign accounts, taking high rates (0.5%-0.3%). All banks allow opening a bank account for transactions with reduced fees.
  • Money Sending Bureau – small establishments found on high streets around the world enable the wiring of money internationally for somebody to pick up at the other end.
  • Foreign exchange platforms that offer better rates, such as:

https://www.currencytransfer.com

http://www.money-transfer.co.il/en/Home

https://transferwise.com/