The Loss of the Foreign Purchasers of Israeli Real Estate

Why Foreign Investors Buy Israeli Real Estate

Old house In classical traditional Bauhaus style in the white city Tel-Aviv Israel

Over the past ten years and until very recently, there was a rush on the purchase of apartments in Israel by foreign purchasers. There are many reasons for this. One reason is anti-Semitism.  Jews in many countries have felt the fear of anti-Semitism and have felt the urgency to prepare an apartment for themselves to live in, in the event of another holocaust.  Another reason was the rise in prices. To invest in real estate in Israel was a sound investment.  If the currency under which you lived and worked was strong against the Israeli Shekel then this was another incentive to purchase real estate in Israel.

The Results of Foreign Investment in Israeli Real Estate

The influx of real estate investment by foreigners had an adverse effect on the Israeli real estate market. The prices of apartments in the major cities such as Jerusalem and Tel Aviv rose. This rise in prices prevented the average Israeli from buying apartments in those cities. In many neighborhoods where foreigner purchases are particularly high, such as the center of town or the Mamila neighborhood in Jerusalem you can find many empty apartments owned by foreign residents, thereby creating a ghost town.  The result of this is that many Israelis left those cities for the peripheral cities such as, Raanana, Kfar Sava, Netanya, Modiin and Beit Shemesh. The prices in those peripheral cities rose as well as a result of this and as a result of purchases of apartments in those cities by foreign purchasers.  Even cities such as Hadera and Zichron Yaakov have suffered a rise of prices.

Government Efforts to Bring Down Apartment Prices

In an effort to bring down the prices of apartments in Israel or at least to prevent them from rising more, the government is doing several things. One step is to free up more land for construction and flood the market with more apartments thereby bringing down the prices. Another is to discourage both Israeli and foreign investment in real estate by raising the purchase tax on the purchase of additional apartments and on the purchase of even one apartment by a foreign resident.  A foreigner who purchases and apartment at 1,500,000 NIS will pay purchase tax of 120,000 NIS. If an Israeli purchases an apartment at this price and it is his only apartment his purchase tax will be 0.  If an Israeli purchases such an apartment as in investment (where he already owns an apartment and is buying this new one as an investment without selling off his current apartment) then he will also pay 120,000 NIS.

Let’s make one thing clear 1,500,000 NIS won’t buy much in Tel Aviv and Jerusalem. It might buy a two bedroom apartment in Modiin.  You can see the problem.

The Effect of Foreign Currencies on the Israeli Real Estate Prices

In addition to the above, the Israeli economy, which is actually doing well, has caused the rise in the NIS as opposed to the dollar and British pound. The U.S. dollar began to fall against the Israeli NIS back in 2006. The subprime crisis in 2008 did not help mahttp://levinlawoffices.co.il/levinlaw/wp-admin/media-upload.php?post_id=1470&type=image&TB_iframe=1tters. The British pound has fallen recently even more due to Brexit.  This makes purchasing an apartment in Israel even more expensive for foreign purchasers.

So the result is that foreign purchasers may stay away.  The question is will this bring down the prices of Israeli real estate.  If they’ve chased away foreign investors what will this mean to the Israeli economy?  It will mean that less foreign currency will be flowing into the country. It will also meant that Israelis will be investing in real estate abroad, thereby transferring currency out of the country.

Optimism

However, foreign and Israeli investors would do well to keep an eye on Israeli real estate in the future.  There are other types of real estate investments one can do such as the investment in commercial real estate, Tama 38 projects and real estate investment funds.  In addition to this, should residential real estate prices drop then the time may be ripe again for the return of the foreign investor.

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