Despite its small size, the State of Israel is one of the most talked about countries in the world media. It’s partly because of the country’s political conflicts that have lasted thousands of years and because it is the center and pilgrimage destination for the world’s three major religions, among others.
But there is something else special about Israel that the international media misses: it is one of the best real estate investment destinations in the world. In 2022 the price of real estate in Israel went up by almost 20%!
So why is real estate in Israel so stable and why do prices continue to rise?
- A) “Buying an apartment” is part of the Israeli ideology. While most of the world lives in public housing or rent, in Israel our perception is different. Most of us go through the same path of life that we were “brought up” to – go to school, be a good student and graduate, serve in the military, travel after the army, study for a bachelor’s degree, look for a job, save as much as possible, get married, buy a house, and wait for retirement.
- b) Another part of our ideology is living in the center of the country. The main reason for rising real estate prices in Israel, especially in the Tel Aviv area, revolves around demand and supply. When the majority of the population wants to live in the same area, property prices rise directly.
The cost of land
Almost 92% of Israel’s land is owned by the state (RMI), creating a “monopoly” and effectively eliminating the behavior and effects of a free market. The state decides how many apartments to thaw and for what purpose (residential, commercial, agricultural, public areas, offices, etc.).
This directly affects the supply and demand because if there are fewer lands available as a result of the RMI decisions, the price of the lands will directly increase.
The vast majority of new real estate in Israeli projects are built only with traditional/conventional construction methods. Meanwhile, in the western world and the developed east (China and Japan), large projects are built using modern construction methods such as “modular construction” (manufacturing main parts in a factory and assembling them at the construction site). This modern method can reduce construction costs in Israel by 40%-60%. This is very significant, especially when it comes to large projects with towers or new neighborhoods.
The Israeli market is not ready for this due to ideology. For comparison, construction costs today for a developer/contractor range from 4,500 to 7,700 NIS per square meter (at the completion level = getting a key). With modern construction methods prices can range from 2,500 to 3,500 NIS per square meter.
Today Chinese and American companies are trying to implement these methods in the construction system in Israel. We will probably see a change in the coming years, but not yet.e.
Beyond the price differences in construction methods, the modern methods are also faster, taking just about half the time to complete..
New construction starts
One of the main factors that influences the increase in real estate prices is the pace that new construction starts. Just like in basic trade, when there is a lack of a product, product prices rise. According to the CBS (Central Bureau of Statistics) data, in the 12 months between April 2017 and April 2018, construction of 43,350 new apartments in Israel began. Maybe that sounds like a lot of apartments, but it’s actually a 22% decrease compared to the previous year. In order to reduce the demand gap, approximately 70,000 new apartments must be built every year, thus increasing supply and balancing apartment prices.
One of the reasons there aren’t many new construction projects is the long and complicated licensing and bureaucracy procedures to obtain planning approvals and building permits.
It is worth noting that the “Resident Price” program should help to reduce the gap in the long run, but it is still too early to determine this. This is not the place to go into the details of the price plan for residents, but people from the real estate industry in Israel criticize this plan, claiming that it does not prove itself despite the low “target prices.” If the topic interests you, you can read a lot about it online.
When interest rates in the economy are low, financing costs become cheaper, which causes more people to look for investment opportunities because money and financing “are cheap.” When interest rates in the economy are low, more people can afford to commit to a mortgage and purchase investment properties.
All these factors affect the real estate market in Israel and almost all of them are derivatives of demand and supply.
Investors from all over the world
It doesn’t matter if someone wants to purchase a property for investment purposes or as a future residence in the only Jewish state. Investors from all over the world understand the uniqueness of Israel in that it is a small country with significantly limited supply in relation to demand. Investors from all over the world want to invest in Israel, a fact that dramatically increases the demand that turns the real estate market in Israel into a stable investment channel with huge profit potential!
Is Real estate in Israel a good investment?
When we look at the reasons that lead to the rising real estate prices in Israeli and understand that there are many reasons that the state does not succeed and perhaps does not even try to take control of and improve them, I conclude that in terms of investment potential there is a very high return on apartment purchases in Israel. In addition and perhaps more importantly, there is great stability and very low risk. So yes, the answer is that buying an apartment in Israel is an excellent investment.
The increase in real estate prices in Israel in recent years
Average increase in apartment prices by year
How do mortgages work in Israel?
A mortgage is the most convenient form of financing because the bank has a low risk (assuming repayments are not met, the bank takes the property and sells it through a receiver – the surplus from the sale after covering the loan debt will return to the owner). The duration is usually for a long period, so the bank can give relatively good conditions including interest (depending on the market situation). For all matters of mortgages, the banks work according to the instructions of the Bank of Israel, which dictates to the banks certain conditions such as financing rates, mortgage interest, and the mortgage repayment ratio.
By and large, there are fixed guidelines such as the percentage of equity that must be provided and the amount of the repayment in relation to the amount of income, but the bank examines many other things such as the financial conduct of the customer and other obligations he has.
Foreign citizens can receive 50% financing for the purchase of a property in Israel, but it depends on each person; their financial capabilities and the level of risk according to the bank.
Can foreigners buy property in Israel?
Yes, real estate licensing in Israel legally allows foreign citizens to purchase apartments in Israel, both new apartments from contractors and second-hand apartments from private sellers. But there are differences in the registration process itself and the purchase agreement with the seller.
The real difficulty for foreign citizens is usually related to transferring funds from abroad to Israel. Already at this stage it is important to note that a foreign citizen can open a bank account in Israel in his name. Usually the difficulty is in the transfer itself when the bank requires detailed explanations about the source of the money and the connection to the bank account from which the money was sent. The difficulty is much more dramatic when it comes to money from a limited liability company.
Often the simplest solution is to transfer the money directly to the seller’s bank account and then the seller is the one who will have to account for the amount of money coming in and usually it is enough for the bank to see the purchase contract to approve the entry of the amount.
Where is the best real estate in Israel?
The question of where it is best to invest in Israel is a very complex question because it very much depends on the desire of the seller. If the purpose of the investment is mainly yield and return on money, then outside the central cities is best because real estate prices are relatively low and the yield in terms of percentages is much higher. But on the other hand, if you are looking to invest in a place that is multi-purpose, which means an area that is suitable for both tourism and long-term residence, and in an area with very high and stable demand, then central cities like Tel Aviv and Jerusalem are the best investment. Personal considerations should also be included, for example, many investors have family in Israel, so sometimes it would be wise to purchase specifically in cities close to those families.
How to invest in Israel’s real estate market?
The best way is to first study the field in depth. If you are reading the content on my site now then you have most likely already started the process. Second, it is advisable to talk to professionals or relatives from the area to understand more about the state of the area in terms of prices, purchase options, required professionals such as a lawyer or mortgage consultant, tax consultant and more. After that, when the whole picture is complete for the buyer, it is necessary to decide where to purchase an apartment and what type of property.
Do we need to have a bank account to buy an apartment in Israel?
You don’t really need a bank account, but it is indeed desirable to have an Israeli bank account because it makes the whole process much more convenient and simple. After all, a tenant who wants to pay rent every month will simply want to deposit funds in an Israeli account and not make a bank transfer. In addition, it is customary in Israel to give checks as rent payments, so in order to deposit them, an Israeli bank account is required.
Real estate agents in Israel
As in most countries, in Israel most properties are represented by brokers and agents. In Israel it is customary for brokers to take a commission from both the seller and the buyer. The commission fee is approximately 2% of the total amount of the purchase as stated in the purchase agreement from each side. But it is important to clarify that everything can be negotiated andfor properties priced at a million dollars and north a 1% brokerage commission can be negotiated. According to the law there is no limit. A broker can demand as much brokerage commission as he wants and even charge some amount to the price of the property, but again, as stated, the customary commission is 2%.
Real estate lawyers in Israel
In Israel, you are required to hire the services of a lawyer when you want to buy or sell property. The 2 main reasons are to perform due diligence on the property before making a final commitment to purchase it and to check that there are no warning notes on the property or that the property is mortgaged. Second, only a lawyer in Israel can register the apartment in the buyer’s name with the authorities. It is customary in Israel to pay a lawyer a fee ranging from 0.25%-1% of the total value of the deal. This does not mean that the one who charges more does a better job and vice versa, so it is important to rely on recommendations and experience.
What does my consulting service for purchasing a property in Israel include?
- Support in opening a legal entity for taxation in Israel.
- Assistance in opening a bank account.
- Overview and familiarization of Israeli demand..
- Locating attractive properties and investments in Israel.
- Negotiations for purchasing property with the aim of purchasing below market prices.
- Legal support for the property purchase agreement.
- Assistance in obtaining a mortgage with attractive conditions.
- Supervision of the purchase process.
- Assistance in finding a tenant at a fair price.
- Connection to professionals for managing the property.
There are many, many reasons, but the main reasons are the low supply compared to the high demand of the growing population through immigration. Other reasons include high construction costs attractive financing that can be obtained from the local banks, high demand in central areas, and investors from all over the world who continue to purchase properties in Israel
Contrary to popular world opinion, Israel is a stable and developed country with a strong economy that continues to grow. Real estate prices in Israel continue to rise and it doesn’t look like there will be a drop in prices in the coming years, so yes, investing in Israel and purchasing a property is considered a good investment with low risk.
Yes, foreign nationals can purchase property but the process is slightly different legally. But unequivocally yes and there are no limitations
Foreign citizens can receive financing of up to 50% of the value of the property as a mortgage with a spread of about 25 years
In general, almost everywhere in Israel the investment pays off when you look at the increase in value. Cities like Jerusalem and Tel Aviv have the highest demand but the lowest annual rental yield. When you look at central cities in the north and south, you can see that although they are less attractive, the annual yield and the increase in value there are percentages higher.
The brokerage fee used in Israel for the purchase of an apartment is 2% from the seller’s side and 2% from the buyer’s side. But this is a figure that is open to negotiation and can be lowered significantly
Lawyers in Israel charge for the due diligence of the property, the preparation of the legal agreement for purchase or sale, and the transfer of ownership between the buyer and the seller. The fee is derived from the value of the transaction and is usually between 0.25%-1%.
The most recommended way is to use the experience and ability of a recognized company that will accompany the buyer through the entire process of purchasing the property from end to end.