By Adam Ross
Yoav, a 34-year-old sports club manager in Jerusalem can’t afford to buy a property in Israel, but surprisingly, he owns two properties in Pittsburgh, Pennsylvania–and he is not alone. With property prices sky-high in Israel, Yoav is one of thousands of Israeli private investors taking advantage of rock-bottom prices and a wave of foreclosures in some U.S. cities.
A study commissioned by Globes in 2011 found that Israelis had become the largest group of foreign buyers on the U.S. property market–second only to Canada, and knocking the Swiss into third place–investing $1.15 billion, counting for 10 percent of all property investment in the U.S. that year. These figures also include commercial property, but the increased residential purchases are also on the rise.
Following a recommendation from a friend, Yoav purchased his first property three years ago. Impressed with the returns, he purchased a second and spread the word to his family. His father and brother followed suit, buying properties, and Yoav isn’t done yet, eyeing a third property.
A flurry of Israeli investment brokers have capitalized on the opportunities at hand, setting up shop across the United State assisting Israelis in buying and renovating repossessed homes for rental, with each broker offering specialist advice on different locations across the country. Nadlan USA is busy attracting investors to Cleveland. Butterfly Investments offers specialist sales advice in North California, with Re/Max focusing on properties in Detroit, Michigan.
The websites of these companies show the staggering profit that can be made with properties bought for as low as $10,000 and sold after renovation a few years later for as much as $180,000.
Tzviki Ben David is the founder of market leader BHRE Group, which develops and manages investments in Israel and the U.S. The United States division is focused on New York and Pittsburgh. He explains:
“The investment is considered safe, reliable, and is proven to provide yields of anywhere between 10% and 13%. By comparison, traditional investments in similar locations yield more like 3—4%.
“The U.S. market is in a state of gradual recovery, so there is a window of opportunity whereby purchases remain affordable while investors can also expect a steady growth in the value of their property. The demand for rental accommodation is high, with mortgages so hard to come by following the collapse of some of the country’s biggest mortgage brokers.
“In advising buyers, we look to the factors that make a good purchase. Price of houses, the employment prospects in the city, and the amenities are just some of the factors in determining whether the property will accrue in price and yield profit. The savvy investor will look for options in a U.S. city where prices are traditionally low but have maintained economic stability regardless of the crash.”
After three years, Yoav has already made back more than 30 percent of his initial investment. “I am making about three times as much as I would be making had I invested the same amount in Israel,” he says. “I am in no position to buy my own home here in Israel, as prices are too high, but I did have some savings.”
The difference in prices on the two property markets is stark, as Yoav points out. Following the collapse of the housing market in 2010, around 2.9 million homes in the U.S. received notices of default, auction, or repossession and were set for resale at a fraction of their original value. In Atlanta, as many as one in 39 homes was repossessed. Although things are beginning to settle down, the prices in the U.S. are nowhere near their peak levels of 2006.
The housing crisis in Israel boiled over in the summer of 2011 with demonstrators take to the streets marking their frustrations by pitching hundreds of tents in major cities including along Tel Aviv’s stylish Rothschild Boulevard and outside the Prime Minister’s Office in Jerusalem. Following a summer of street protests which banged the drum of hundreds of thousands of middle-class Israelis who can’t get a foothold on the property ladder, the issue became central in Israel’s recent national elections, with many of the political parties promising to force change.
A new party, Yesh Atid (“There is a future”) was formed, seeking to seize the momentum of the frustration, especially within the Israeli middle classes. The party was the runaway success of the election, garnering 19 out of 120 seats in the Knesset, making it the second-largest faction. The party’s leader, TV anchorman-turned-politician Yair Lapid, is now the country’s finance minister, but prices don’t look like they will come down too quickly.
The housing portfolio, one of the most hotly contested as the new coalition was being formed, is now in the hands of the Jewish Home Party under the leadership of high-tech-startup millionaire Naftali Bennett, who has also pledged to make a difference, but the mood is not one of extreme optimism.
Presumably shoring up its defenses against the same kind of crisis that hit the U.S., the Bank of Israel last year placed increased limits on credit for mortgages and also introduced higher loan charges. There have been some efforts by the Israel Lands Authority to force prices down, including a program entitled “Mechir L’Mishtaken” (“the occupants’ price”) where land is awarded to contractors who pledge they will sell at the lowest price, although the scheme has yet to yield significant results. v