Although the real estate market in Israel is gaining ground limited financial instrument for raising capital and tight legislation are putting a halt on alternative forms of financing through the real estate market. "When we look at the global trend of raising capital for real estate in the financial markets, we see how much Israel is still lagging behind in terms of alternative sources of finance and financial structures and instruments," said Amir Biram, general manager of the REIT Israel Group at a real estate conference sponsored by the Maalot credit agency. Real estate investment trusts, or REITs, which enable small investors to participate in large-scale real estate projects while at the same avoiding double taxation, were introduced in Israel at the end of last year following the amendment to the Income Tax Ordinance. This week, Excellence Investment's REIT 1 Fund, Israel's first REIT bought its first property. The fund, which was established a few months ago, bought the Robogroup TEK's compound in Rosh Ha'Ayin for NIS 37.3 million in a buy lease-back deal. The REIT 1 Fund, raised NIS 140m. from investment institutions in April. "REITS are a good financial tool to raise capital for real estate in the financial markets," said Ilik Rozanski, CEO of Delek Real Estate. "But in Israel it is impossible because of the rigid rules and tight regulations." The approved REIT must be a public company no more than a year old, with capital gains tax of 25 percent to 34% applied to the transfer of appreciated property, as well as a purchase tax of 0.5%. The problem is that most of the real estate companies in Israel are more than a year old and would therefore have to create a new company to adopt a REIT structure "The problem with REITs in Israel is that the requirement of a new company is impossible," said Biram. "The Israeli REIT has to be like the US REIT." There are two significant differences from US REITs. First, there is a statutory limit of 60% on the amount of leverage Israeli REITs can assume and, second, Israeli REITs must have at least 75% of their portfolio invested in domestic real estate assets. Other provisions include a mandatory listing on the Tel Aviv Stock Exchange and at least 100 shareholders in the company upon registration. Also, no more than five of the investors can directly or indirectly own more than half of the REIT shares.