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The Israeli Real Estate Investment Journey: Advantages & Disadvantages

Investing in Israel has appealed to Jews in the Diaspora since the founding of the State of Israel. Emotional connections, post-war fear and for the longest while, favourable exchange rates have all played their part in the appeal for a place in the sun.

As the country grows and the economy flourishes, owning a property in Israel now also represents a good financial investment, adding to a growing list of appeals, and for good reason.

Since 2007 the Israeli real estate market has been a hot commodity for all investors. Overall, market prices have risen 82.5% with monthly drops registered in only 11 months since that year. As a result of the once existing difficulties imposed upon local buyers, the Ministry of Finance changed the mortgage and purchasing policies improving the process and market dynamics for investors.

While GPI walk investors through every step of the processes, here is an overview of the advantages and disadvantages in today's real estate investment journey in Israel.

The Advantages:

The demand for homes has extended into the periphery

Similar to many other cities around the world - the centre captures the most attention. In Israel, Tel Aviv & Jerusalem are the centre of both cultural and political life and as a result - have always represented the most attractive investment opportunities. However, a continually improving infrastructure nationwide has contributed to a new and growing interest in investment in cities beyond our two 'capitals' alone.

Investors now looking for homes along the shore, are prepared to look further afield in areas that boast more competitive prices with equally attractive living. Incidentally, investor interest isn't only reserved for the shoreline, but now, with the prospect of a fast rail network and other improvements - extends towards the ever-widening periphery too.

The demand is very high

Investing in the Israeli real estate market represents a wise choice for investors with the added benefit being that the supply has not kept pace with the demand. Until now, low interest rates hiked up the demand for buyers. Q3 of 2019 saw a further spike in the purchase rate because of the widely accepted belief that house prices won't be falling anytime soon, representing a perfectly ripe ecosystem for investors.

Israeli mortgages are available to foreigners

A market-changing move by mortgage lenders means today, the majority of high street banks are in a position to offer mortgages to foreign residents. In terms of the bureaucracy involved, all that's required to get the ball rolling is a call to the bank where GPI advise to first check the Terms & Conditions that apply for non-Israeli residents.

The Disadvantages:

The Construction Cost Index affects the price

The Central Bureau of Statistics Index of 'Inputs' in residential areas controls most of the building contracts. A breakdown of this price index of inputs includes things like the cost of materials, the product value and the services used in constructing these residential buildings. For example, the price of cement or labour costs can negatively (or less often - positively) influence the index.

Additionally, foreign investors who are converting their currencies in order to invest are affected not just by this index but by the potential losses incurred through exchange rates.

There are no institutional bodies regulating the rental market

The organization of the rental market in Israel is very poor indeed, leaving a rental market that is privately run and under regulated.

Tenants obtain their rental agreements from the owners themselves or representatives working on the owners' behalf. In any case, the amenities offered by some of these buildings are below standard, and yet the rental prices - tied to the consumer price index - often rise regardless.

Like most things in Israel, knowing how to navigate the system is key to achieving the right results with the least amount of stress and the greatest possible clarity. Like the wider investment savvy community, GPI believe the advantages of investing in Israeli real estate far exceed any of the disadvantages.

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