Category: Blog Posts

The State of the Israeli Rental Market

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“So, what is Kahlon doing to the Israeli rental market?” my friends ask me, as we sit over a coffee or a beer discussing the state of the nation. My clients are asking a slightly different question: “Is the new Minister of Finance making it easier for Israeli families to buy homes, and does that mean that we won’t find tenants for our rental apartment?”

Moshe Kahlon was elected on a platform of reducing skyrocketing real estate prices and helping middle-class Israeli couples to get onto the housing ladder. As Finance Minister, his strategy to bring down house prices is based on a combination of measures designed to drive down demand and increase the supply of new homes.

Moshe KahlonThat is why in recent weeks there have been a spate of announcements of home-building tenders and land being released for development. New projects being started in the North and South of Israel – Haifa, Netanya, Herzliya and Beer Sheva, for example – are designed to take the heat out of the real estate market in central Israel.

Some of these government tenders are structured to keep a cap on the price of land so that the developers can keep apartment prices low. Some require a proportion of each new project to be cheaper housing, with prices set low and fixed for 20 years to prevent profiteering. Other projects, such as the new tender in Herzliya, will allocate 25% of the new properties to local residents.

In an attempt to reduce the demand for real estate, on July 1, 2015, the government increased the purchase tax on second homes. Investment properties worth up to NIS 4.8 million ($1.26 million) now incur a 8% purchase tax, and homes worth more are taxed at 10%. Their goal is to discourage real estate investors from buying and renting out multiple apartments, which prevents middle-class Israelis from buying affordable homes.

When news of this new tax got out, people rushed to buy second homes and complete their purchases before the deadline, making June 2015 the hottest month ever for Israeli realtors! But the market did not collapse in July. Investors continue to buy property in Israel, either swallowing the tax or purchasing apartments in their children’s names. For as long as interest rates around the world stay low, the Israeli real estate market will continue to attract savvy investors who simply cannot get the same rate of return from the banks and the stock markets!

There were some concerns that the purchase tax will be passed on to tenants in higher rental payments, but since the rental market in Israel still remains strong in most cities, it is not difficult to find good tenants for well-appointed new apartments in sought-after areas. By managing them efficiently, we can generate an excellent rate of return. Even when all the proposed new apartments have eventually been built and sold – which will take a few years – there will be no shortage of renters.

(See our blog from July where we gave “10 Reasons Why Israeli Rents are Rising”.)

I believe that for as long as Israeli couples meet and get married, and while thousands of people every year make Aliyah to Israel, the rental market will stay strong.

The prophets of doom keep warning that the steady increase in Israeli real estate prices is a property bubble that must eventually burst. I do not claim to be a prophet – “never say never” is one of my mottos – but I do believe that demand for homes in Israel will stay strong for as long as the country and its economy stays strong. After all, Israel is the only Jewish homeland, and every Jew wants a piece of it!

Creative Estates can help to manage your investment property in Israel – contact Shaun@CEIsrael.com

 

Renting Your Israel Property

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People often ask me how to get the best rate of return by renting their property in Israel. At Creative Estates, we recommend and manage the long-term rental of unfurnished real estate for maximum ROI.

PROPERTY IN ISRAELIf you own a home near the sea or in an area popular with tourists, you may want to offer it for use by others as a vacation apartment. Particularly if you plan to visit Israel once or twice a year, a short-term rental arrangement may be more convenient, so that you can reserve certain dates for yourself and your family. However, if you choose this option, you would need to charge higher rents during peak rental seasons, to cover your costs during those months when your property will generate no income.

At Creative Estates we generally recommend choosing long-term contracts for maximum rental income, and we advise our clients to rent their Israeli properties unfurnished. This is because the best and most reliable tenants are people who have accumulated their own furniture, and who generally want to stay in one place for a number of years. They tend to pay their rent on time, and they are usually less “needy” and cause fewer problems than short-term tenants, because there is a clear correlation between the arrival of new tenants and things needing fixing!

People often tell me that they don’t need a property management agency because their son, or a neighbor or good friend, has offered to take care of their apartment for them. That’s usually fine until something goes wrong. A leaking pipe on a Friday afternoon, or problems with tenants who prove difficult or demanding, can test the strongest of friendships.

The person looking after your property should check on it at least once a week, opening all the faucets and checking for leaks and blocked drains, particularly in anticipation of changes in the weather that can cause flooding or freezing. They need to be “on-call” 24/7 to respond to emergencies, and they need to know how to get things fixed quickly and competently by reliable tradesman who won’t overcharge you.

If you would like to know more about professional property management and how Creative Estates can help you to maximize the ROI of your real estate in Israel, please contact us today at: shaun@CEIsrael.com or +972-52-652-1096.

Ir Yamim – City of the Seas

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Netanya has always been a favourite seaside resort for visitors to Israel and retirees from colder climates, but it is also a booming Israeli city with a red-hot rentals market.

Ir Yamim is the latest Netanya suburb to spring from the sands, and it is already attracting young Israeli couples and families and generating excellent rental revenues for property owners. Its name means ‘City of the Seas’ and it is located to the south of the city, next to wide expanses of white sandy beaches that have been largely ignored until now.

Netanya has expanded southwards in recent years and invested heavily in new infrastructure and community facilities. Along with high-specification apartment buildings the city has built schools and synagogues, a new shopping centre, and a sea front promenade.

This attractive new development is selling faster than the contractors can build! One developer told me that every property is occupied within a week of completion, and there is a waiting list of tenants looking for apartments to rent. Ir Yamim properties are proving popular with native Israelis who appreciate their excellent location, with Olim from Europe who enjoy Netanya’s continental flavor, and with retirees who can enjoy the sea views and promenades.

To find out more about owning and renting out a property in Ir Yamim, contact Shaun at Creative Estates Israel.

 

What’s Happening in Tel Aviv?

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TelAvivIsrael’s major metropolis is undergoing major transformations, making the city more accessible and enjoyable, but this will likely drive up real estate prices throughout the area. If you are thinking of investing in Tel Aviv, don’t wait!!

Construction of Tel Aviv’s new light rail network began in 2009, and in August 2015 they began digging out ten underground stations in the city center, which will connect with the surrounding cities of Petach Tikva, Bnei Brak, Ramat Gan, Jaffa and Bat Yam. Once completed, this 22-kilometer Red Line will link 33 stations. Experts predict that property prices will rise quickly around each of them as the railway nears completion, slated for 2020. After the Red Line, seven further rail lines will be built, connecting every part of the “Mercaz” – Israel’s most heavily populated central region. In addition, the direct fast rail link between Tel Aviv and Jerusalem is slated for completion in 2017, bringing the two cities closer than ever.

To help ease the inevitable congestion during construction of the railway lines, plans are in place to open park-and-ride hubs in Rishon LeTzion, Netanya, Herzliya and Kiryat Shaul. The Israeli Transport Ministry is also cutting public transport fares to encourage drivers to leave their cars at home.

At the same time, planning is underway to construct a roof over Tel Aviv’s Ayalon highway to create an open public area above the road and railway tracks. The area, covering 60 acres, will be designed for leisure pursuits, with bicycle and footpaths paths, green spaces, cafes, and shops. This creative solution is designed to address the shortage of public land in the city center and to improve the environment by reducing air and noise pollution from the highway and railway.

Tel Aviv is already known as Israel’s favourite leisure and food destination, with a wide choice of bars and restaurants of every flavour. The latest addition to the city scene is the new Sarona indoor culinary market, covering 8,700 square metres. Located in the former German Templar settlement near the Kirya and Azrieli Towers, the market includes 89 restaurants, food stands and bakeries, a farmers’ market selling fresh fruits and vegetables, plus stores specializing in sweets, spices, cheese, fish, meat, wine, and cooking utensils. It is designed to appeal both to visitors and local people looking to enjoy a meal or snack in the centre of Tel Aviv, and also to those looking to buy ingredients for cooking at home.

“Exciting things are happening in the Tel Aviv metropolis”, says Shaun Isaacson, CEO of Creative Estates Israel. “We are urging foreign investors to get in fast before the inevitable rise in urban property prices that typically accompanies major infrastructure investment and improved leisure facilities.”

10 Reasons Why Israeli Rents are Rising

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Rents UpRental prices for homes in Israel’s central region are rising fast, giving real estate investors an even better annual return. Shaun Isaacson from Creative Estates explains why.

Summer 2015 is proving to be a hot summer for the real estate market, and rental prices are continuing to rise. Creative Estates has raised the rents on all of its properties by 5% over the past year, and continues to attract and retain excellent tenants. In some countries it is predominantly poorer people who rent properties, but in Israel it is considered normal for well-paid individuals, couples and families to rent a home for many years, for a number of reasons.

1) Israeli Banks are reluctant to lend – it’s difficult and expensive to get a mortgage to buy a property in Israel.

2) 30% deposit required – for an average home costing 1.8 million NIS, a young couple has to come up with 540,000 NIS ($142,000)

3) Mazal Tovs! – the marriage rate in Israel is still high – 50,000 couples tie the knot each year, generally leaving their parents’ home and renting an apartment.

4) Incoming Olim – Aliyah is still increasing, from France, the Ukraine, India, and all over the world, and most new immigrants to Israel start out renting.

5) Limited Space – Israel is a relatively small country with an increasing population, and there are also political reasons why developers cannot get permission to build in many areas.

6) Regional Concentration – Israel’s population is still highly concentrated in the Mercaz area – particularly the Sharon and Gush Dan regions where the well-paid jobs are, which keeps prices high in these areas.

7) City Life – Singles and couples tend to rent apartments in the city for a few years while saving money to buy a house in the suburbs or somewhere more family-friendly.

8) Focus on Luxury – Real estate developers are still building more high-end properties designed for wealthy overseas investors and fewer affordable homes for young couples and families.

9) First Time Buyers – the new government elected in May 2015 has promised to help first-time buyers, so many are waiting to see what measures will be introduced before they buy.

10) Rent Control Plans – rumors of government plans to control rent increases to 3% per year will not dampen demand or limit price increases. In fact, we expect 3% annual rent increases to become a standard contract term, even when inflation is much lower!

Shaun Isaacson is a qualified lawyer and realtor and has an MBA in Finance. He is CEO of Creative Estates Israel, which provides investment and property management services for property owners in Israel.

Turning One Apartment into Two Investment Properties

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Israel property investors can take advantage of today’s low interest rates to expand their Israel real estate portfolios by leveraging their existing assets.

split picOne of our clients owns a property in Israel that is now worth 1.7 million NIS – approximately 30% more than when it was purchased 5 years ago. They wanted to buy an additional apartment in Israel for one of their children without having to sell their investment property, which is earning good rental income, and without having to invest much money.

Based on their existing equity, they raised a 50% mortgage on their current property, enabling them to buy a new-build apartment for 1.7 million NIS in Netanya, which is a fast-growing city with extensive new development underway.

In Israel, rental incomes of up to 4,900 NIS per month can be earned tax-free, and the proceeds used to make monthly mortgage payments. This means that the investor who can fund his purchase by releasing equity from existing properties only has to find sufficient money to cover the costs of the purchase, namely the agents’ and lawyers’ fees and purchase tax.

We recommended to our client that the apartment be registered in the name of their child, in order to reduce their tax liability. This is standard practice in Israel, where wealthy families often buy new apartments in up-and-coming neighbourhoods for each of their children, but it is only possible for Israeli residents.

Because of the way that Israel’s towns and cities are expanded, real estate developers often offer individuals and groups of investors excellent opportunities to buy homes “off-plan” before a new suburb has been built. Over the next few years, as the properties and infrastructure are built and families start to move into the new area, facilities such as health clinics, food stores and kindergartens will be opened, trees and parks planted, and Israel‘s public transport companies will add new bus routes to connect the new streets to the neighbouring suburbs and towns.

Approximately 5 years after the first homes were purchased in a not-yet-existent neighbourhood, their resale value will have almost doubled and their rental value will have risen dramatically. During the early stage of the project, these new properties may have been rented to young singles or couples who do not mind living in a new area with basic facilities.

Creative Estates Israel can help non-Israeli investors to get involved in these same exciting real estate investment opportunities. We are in touch with property developers and aware of many new projects that are being planned and are open for investment. Please contact us to find out more by emailing shaun@CEIsrael.com.