no crisis

Israel is one of the few developed countries that can boast that in recent years the local real estate market, in spite of all global crises, has been experiencing a steady rise (the second such exception is Switzerland). Russian and Israeli experts agree that the situation will not change in the foreseeable future.

While almost the entire world was experiencing financial turmoil, Israeli real estate opened up new prospects for investors
Photo: Eddie Gerald / Alamy / Photo ITAR-TASS

Five-year growth plan

Let's start with statistics. According to data from the Israeli Central Bureau of Statistics published in February, during the current rise in housing prices (which began in May 2007), apartments have risen in price by an average of 74.5%. The most rapid growth was observed in 2009, when housing prices rose by an average of 2% monthly. Over the past year, price growth was 6.8%.

Just in recent weeks, the first signs of slight braking have become noticeable. Thus, according to the index of the Globes newspaper and the site of paid real estate advertisements homeless.co.il, last February, out of 15 districts of Israel, three-room apartments fell in price in 12 (on average by 0.65%), in 9 - four-room apartments (1.1 %), 10 have five-room apartments (0.85%). In other areas prices were stable.

One of the important factors contributing to further price increases is the large pent-up demand for apartments from the local population. According to a study conducted by Gazit-Glob, during the five-year period of rising prices, the availability of a standard four-room apartment for Israelis decreased by almost 30%. In 2008, the price of such an apartment corresponded to 100 average salaries, in 2012 - 131. This is more than double the figures in the United States and developed countries of Western Europe.

In addition to domestic demand, there is stable demand from outside, which after the 2008 crisis practically did not decrease, but rather changed. Shortly before the crisis, a study by urban planner Jonathan Levirer was published, according to which in the center of Jerusalem 20% of apartments belonged to foreigners, mainly Orthodox Jews from the USA, Great Britain, and France. Many apartments stood empty for almost the entire year. Mr. Levirer predicted that by 2015, some areas of the city would have a conservative estimate of 50% of apartments vacant. Due to the crisis, “religious” demand decreased, but a new factor soon emerged - growing interest in Israeli real estate on the part of Russians and citizens of other CIS countries. This was facilitated by the introduction of a visa-free regime - in 2008 for Russian citizens, in 2011 - for Ukrainian citizens.

Figures show that external demand, which sank in 2009 (by 33% of the pre-crisis level), began to recover already in 2010 (being 13% below the pre-crisis level).

Cooling system

During the time during which Israeli apartments rose in price by 74.5%, the volume of issued mortgage loans increased in almost the same way, or more precisely by 76%. The Bank of Israel has taken a number of measures aimed at curbing the rapid growth of mortgage lending (no doubt taking into account the sad experience of the United States in this area). In the second half of last year, the size of mortgage loans issued was limited. For buyers of the first apartment - no more than 75% of the cost, for those improving living conditions - up to 70%, for investors - up to 50%. Since these measures did not bring the desired improvement, in February 2013 the Central Bank tried to go the other way, forcing commercial banks to improve the quality of their mortgage portfolios by increasing deductions for risky mortgage loans issued. In addition to strengthening the stability of the banking system, this should lead to an increase in the cost of mortgages and, accordingly, a decrease in demand and prices.

In March, the interest rate in Israel remained low at 1.75%. Shmuel Ben-Ari of Pioneer Private Wealth Planning, in an interview with Israel Hayom, said that this decision by the head of the Central Bank of Israel, Stanley Fischer, indicates that his main concern is “to avoid inflating a bubble in the real estate sector,” and to a much lesser extent Stanley Fischer concerns about "possible spillover effects on the economy, such as slower economic growth and possibly a slide into recession."

Last October, the Israeli Ministry of Finance approved an additional tax on construction contractors who received land and did not conduct construction on it for a long time. The Israeli media reported that the Ministry of Finance plans to take a number of new measures, such as introducing a tax on the increase in the cost of luxury apartments, introducing an additional tax on transactions for the acquisition of Israeli residential real estate by citizens of other countries. They want to oblige those who purchase two or more apartments to provide the tax service with information about the origin of the funds (however, in Israel, for a long time, people who invest in the purchase of apartments for their subsequent rental have traditionally recorded the second, third, etc. apartments for close relatives).

One tax innovation has already been adopted, but will come into force after May 5. This is a slight reduction in the tax rate on home purchases. According to the new rules, when purchasing a first apartment, buyers are exempt from tax if the price of the home does not exceed 1,241,110 shekels (about $335 thousand). A tax of 3.5% will be levied on that part of the cost of the apartment that exceeds 1,241,110 shekels, but below 1,744,270 shekels (about $470 thousand). The portion of the price that exceeds this threshold will be charged 5%. For those who already own real estate in Israel, when purchasing new properties, the tax rate will be 3.5% for a purchase price up to 1,055,935 shekels (about $285 thousand) and 5% for anything above this amount.

With hope for the future everyone

According to the results of a survey conducted in November last year by the Israeli branch of the largest international auditing firm Deloitte Deloitte Brightman Almagor Zohar among leading real estate specialists in Israel, a decrease in housing prices is not expected in 2013.

According to 48% of surveyed top managers of real estate companies, apartment prices will be relatively stable, 35% of respondents predict an increase in prices, and 17% - a decrease.

“There are no reasons for lowering prices,” says Anna Levitova, managing partner of Evans. She draws attention to the excess of demand over construction volumes, the stable interest of foreign investors in Israel (including interest in real estate in Jerusalem due to religious reasons).

“My forecast for the year is 10-12% growth in the value of real estate in the market as a whole, an exception to the general trend is new construction. Up to 16% - if some projects are frozen and if the conditions for issuing mortgages are simplified (in June a new leader will come to the post of head of the Bank of Israel - one of the world's most effective heads of Central banks, the current governor Stanley Fischer, announced his resignation. It is not yet known who will take Mr. Fischer's place and what regulatory policy in the real estate market the new head will apply). “,” comments Valery Kravitz, general director of the investment and construction company Kravitz Invest. “The reasons are quite simple: for a long time the market has been experiencing a shortage of supply, and at the moment this imbalance persists. If we look at the situation deeper, we will see that there are different segments of real estate. will behave differently. For example, by the third or fourth quarter of this year, prices for new buildings may begin to decline - this is due to the entry into the market of cheaper new housing built on preferential land (government agencies provide tax breaks to developers). We will not see sharp rises and falls in the cost of housing, and the rate of price growth will gradually slow down - in addition to preferential land, developers are actively developing the territory of the center of the country (the development of two large areas has been approved - in northern Tel Aviv and in the south of Holon, a suburb of Tel Aviv)" .

“The market will grow this year and next year too,” says Mikhail Lerner, owner of the Lerner real estate agency. “Stability is a distinctive feature of the Israeli residential real estate market. The state constantly monitors the situation. In other countries, markets can be like casinos , where you can both earn a lot and lose a lot. In Israel, such sharp jumps do not happen. I am sure that for serious investors, investing in Israeli real estate is the best option.”

Statistics from the Israel Land Administration also indicate a possible continuation of price growth. In 2012, the agency put up for sale land on which about 38,000 new housing units could be built, roughly the same as in 2011, according to data released in March. However, plots for the construction of a total of 15.4 thousand housing units were sold. This is the lowest figure since 2008; compared to 2011, the drop was 40%. According to management experts, this happened because it became more difficult (and more expensive) for developers to obtain loans for their projects. Rising construction costs should lead to a decrease in profitability, which has reduced the attractiveness of a number of projects.

Two new affordable housing programs failed. The Mahir Le-Mishtaken (Price for New Resident) program provided for the sale of land at auction to the lowest bidder for future residents. Land for the construction of 5.1 thousand housing units was put up for auction, but only the quantity suitable for the construction of 2.25 thousand units was sold. Under the second program, land was allocated for the construction of apartment buildings for subsequent long-term rental. Developers were offered plots for the construction of 1.6 thousand houses, but demand was less than 20% of supply (312 houses).

"Business Sea" and "Relaxation Sea"

“The most important thing when investing in residential real estate in Israel is the right choice of property,” says Mikhail Lerner. “The main thing is its location. A serious mistake of an investor unfamiliar with local specifics is an attempt to act without the help of a professional realtor, contacting a contractor directly Yes, the contractor may offer serious discounts on some apartment, but later the buyer may find that his apartment is cheaper than others. It’s no coincidence that there may be pitfalls such as an unfavorable view from the window, a garbage disposal next to the house, etc. what the contractor knew, but the client could not guess.”

Another pitfall is mentioned by Valery Kravitz: “Some residential properties on the seashore may be listed in the real estate register as hotel-type housing, and, accordingly, completely different rules apply to it (you can live in it only three months a year, the remaining nine months can be rented out, which is more suitable for investment housing)."

“If the purpose of the investment is to generate rental income, you can consider apartments in Tel Aviv at a short distance from the beaches, which, if well managed, can bring high rental yields for a short period,” notes Anna Levitova.

“The main criterion for Russian buyers when choosing housing in Israel is proximity to the sea, so the most popular is real estate on the Mediterranean coast,” says Valery Kravits. “These are cities such as Ashdod, Bat Yam, Tel Aviv, Herzliya, Netanya - the center of the country. Despite the fact that Haifa is also located on the seashore (north coast), this city is not in demand among investors and vacationers; mainly people with Jewish roots buy houses there and want to settle there in the future. Eilat is a small city. on the shores of the Gulf of Eilat, most suitable for beach lovers. You can swim in the Red Sea after just four hours of direct flight from Moscow. Real estate in Eilat is cheaper than in the center of the country - for example, an apartment on the seashore, say, in Netanya will be on the market. order of magnitude more expensive than the exact same apartment in Eilat. As for Jerusalem, this is a very specific city. Today it is not attractive to Russian investors, since in recent years it has ceased to be secular and has become a city for the Orthodox population."

“Tel Aviv, Herzliya, Pituach and Netanya are the most popular among our clients. There is also a small interest in luxury real estate in Jerusalem, located near the walls of the Old City,” says Ekaterina Shahar, partner at the real estate agency Eretz Israel Realty.

“As for geography, for those who need a house by the sea to relax, I would recommend Eilat,” advises Mikhail Lerner. “Eilat has a better climate, it is a year-round resort, and in this sense, the Red Sea is preferable to the Mediterranean. If the buyer is going to engage in in Israel for business or medical treatment - then the center of the country, the Mediterranean coast in the area of Tel Aviv, Netanya is preferable."

Alexey Alekseev

Israel does not hesitate