Ten things you need to know about our real-estate market

Many foreign apartment owners choose not to rent out their properties, a phenomenon that has created so-called ‘ghost buildings’ that are empty for most of the year.

SEPTEMBER 17, 2013 21:24

netanya 521 (photo credit: courtesy) — netanya 521

(photo credit: courtesy)

The Israeli real-estate market has been a hot commodity for investors. Since May 2007, home prices have risen an astonishing 82.6 percent, with overall monthly drops registered in only 11 of the months since then. Because of the difficulties imposed on local home buyers, the Bank of Israel and the Finance Ministry have changed mortgage and buying policies, which have altered the landscape for investors. Bank Hapoalim’s real-estate sector manager Carla Tzabargal offers The Jerusalem Post 10 tips that every foreign investor should know about the Israeli real-estate market.1) Demand for apartments is spreading to the periphery. Although wealthy foreign residents have invested in iconic, symbolic places such as near the walls of Jerusalem’s Old City or the coast in Tel Aviv, growing general interest is pushing demand toward the periphery.

In particular, investors looking to get homes near the sea are moving from high-priced Tel Aviv to other coastal towns, such as Netanya and Ashdod, where the prices are relatively lower.

Expect continuing increase in demand there.

2) The construction index affects the price. Most housing contracts are tied to the Central Bureau of Statistic’s Index of Inputs in Residential Construction, a “price index of the materials, products and services used for constructing residential buildings.”

Everything from the cost of wages to the price of cement can influence the index. For foreign residents who are converting currencies to invest, the index can doubly affect their expected investment cost because it is denominated in shekels.

The price range for beachside apartments ranges from NIS 18,000 to NIS 35,000 per square meter, although Tel Aviv’s luxury apartments reach as high as NIS 50,000 per sq. m.

3) Get legal advice. Buying real estate involves a legal contract.

Because laws in Israel are not necessarily the same as the buyer’s home country, get yourself a lawyer to represent your interests.

Whether you’re buying a new or second- hand home, the seller will likely have a lawyer, so it’s better to have someone with your interests at the table as well.

4) Specialized “vacation apartments” offer the best of both worlds. Israel has several buildings that offer special “vacation apartments” in hotels that operate similarly to a time-share agreement. The buyer has access to the apartment for part of the year – say, three to six months – while the hotel manages and rents out the room for the remainder of the year.

The advantage for buyers is extra income to pay for the apartment or, at least, the management fees in the portion of the year they are abroad. The hotel also typically takes care of maintenance, meaning it’s important to evaluate the quality of the management before making a purchase.

The downside, of course, is less flexibility. Vacation apartments are not a good choice for those who are considering living in Israel more than a limited period of the year, or eventually immigrating.

5) Demand in the real estate market is riding high.

Supply has not kept up with demand in the Israeli realestate market in recent years.

Low interest rates pushed up demand for investors, private buyers, young couples and people looking to move to better homes. In the last quarter, specifically, young couples have pushed up buying, meaning they may not believe the prices will come down anytime soon.

6) There are no institutional bodies in the rental market. In Israel, there are no institutional bodies offering rental apartments, nor are there all-rent buildings.

Renters rent apartments from private owners, many of whom own just one apartment aside from their home, so finding buildings with amenities and tenant services is rare. Rental contracts are typically signed between the apartment owner and renters for one-year terms, sometimes with an option to renew. Rental prices are generally tied to the consumer price index, and rent is paid monthly.

7) Foreign owners seeking to rent out apartments need a local representative.Foreign apartment owners who want to rent their apartment out need to get a local Israeli representative to serve as an address for tenants to deal with issues such as maintenance and repairs. As a result, many foreign apartment owners choose not to rent out their properties, a phenomenon that has created so-called “ghost buildings” that are empty for most of the year.

8) The system for paying new-apartment contractors is different. Unlike other countries, in Israel the contractor is paid during the period of construction, typically no less than 15% at the signing of the contract and the remainder gradually, as construction progresses, so that most of the costs have been paid by the time the key is handed over. However, for every amount paid to the contractor, the payer receives a bank guarantee (except for the first 7%, which is only covered in special cases). The guarantee insures the investment, but it cannot be exercised for speculative purposes.

An alternative option is taking out an insurance policy for the funds paid.9) Israeli mortgages are available to foreigners.

Most Israeli banks offer mortgages to foreign residents.

Call the specific department at your bank to get more information on terms, which may be different than for Israeli residents.

10) Where is the market headed? The last point is one that everyone loves to ask: Where is the real-estate market going? Will prices stabilize? Will they drop? The answer is: Nobody knows for sure. As elsewhere in the world, one cannot guess how, where and when the prices will go.

One thing is certain: The issues is closely linked to supply.

Most of the land is owned by the state, which has not released a great amount onto the market relative to growing demand. The current government has promised to increase the supply.

If it does, there will be a substantial impact on prices.

This article was produced in conjunction with Bank Hapoalim.