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.
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.
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