One of the more interesting developments in the global economy in recent years is Israel’s lively real-estate purchase market for foreign investors.
I am not talking about corporations purchasing commercial buildings and properties, but rather eager individuals from around the world — predominantly from the United States, Great Britain, France, and South Africa — purchasing apartments and homes in Israel.
Some of these people are considering making aliyah and are purchasing a primary residence to live in. Others are looking for a home in Israel they can stay in when they visit. A third and growing group consists of those who purchase for investment. Some in this group buy an apartment or home in a high-demand area, which they can then rent out for short- or long-term stays. These apartments usually rent for a higher amount than an apartment an Israeli would rent at market pricing, and they are lucrative when the investor can secure occupancy on a consistent basis. Typically, these places rent for a lot more during the Sukkot and Pesach holidays and make up for any vacancy during the rest of the year.
This sounds wonderful on paper. When tourists are pouring in and there is high demand, it works well. But, (there is always a “but”) this is a specialized market these investors have created for themselves, and, like any other investment, it is economy-driven. The global economy dictates if it will be a strong tourist year with high demand or, as we have right now, a recession, with many of these investors fighting for renters they can glean from a leaner tourist travel year.
The upside of all of this, even in lean times, is that the real-estate sales market in Israel has consistently risen over the years, and if investors tire of chasing tenants, they can still depend on their investment property to climb in value, so they can sell it and realize a profit.
Other investors do not even bother renting out their investment property. They purchase their property with the intention to hold it for a period of time and then sell it for a profit as the value of the real-estate market in the investment property’s locale rises. With the direction that the real-estate market in Israel has been going, the return on such an investment is much more than one can get with any CD at a bank today, and many savvy investors have utilized the buying and selling or leasing of properties in Israel to generate a nice amount of money.
Returns on rentals have been shown to be in the range of 8 to 13 percent in some neighborhoods — certainly attractive in these days of vanishing bank interest rates — and profits from the sale of properties are also excellent. Percentages are based on the locale and the amount of time the investor has held the property before reselling it in a climbing real-estate market.
The downside is all the complaints coming from Israeli residents living in these areas all year long. The consequence of many of these investments is that the real-estate market is consistently climbing and becoming more and more expensive for the average Israeli. Also, the properties that have been purchased by these investors have a tendency to be left empty and shuttered; some buildings in high-demand areas where there has been a high rate of foreign investment find themselves with few year-round neighbors, creating a ghost-town feeling for the residents who actually live there.
The areas most impacted by this situation seem to be sections of Jerusalem, especially neighborhoods in walking distance to the Old City and the Kotel. This dilemma of rising foreign investment and its impact on Israelis seems to be an ongoing problem. Regular discussions about ways to mitigate its effect on everyday life while not discouraging ongoing investment are on the agendas of local governments. but so far this issue remains unresolved.
This phenomenon of investment in Israel is nothing new. It was created a long time ago by Avraham Avinu when, for a few hundred shekalim, he purchased Me’arat HaMachpeilah —and we know today how valuable an investment that was!
Anessa Cohen lives in Cedarhurst and is a licensed real estate broker (Anessa V Cohen Realty) and a licensed N.Y.S. loan officer (FM Home Loans) with over 20 years of experience offering full-service residential, commercial, and management real estate services as well as mortgage services. She can be reached at 516-569-5007 or via her website, www.AVCrealty.com. Readers are encouraged to send questions or comments to anessa@AVCrealty.com.