Former compatriots make a significant contribution to the flourishing of Israeli real estate
According to data from the Contractors Federation and the Central Bureau of Statistics, provided by the administration of the Domik.israelinfo.ru portal, the number of new apartments sold in 2007 increased by 4.3%. While in 2006 there were 13,291, in 2007 13,866 apartments were sold. In total, the number of transactions in 2007 increased by 6.8% and amounted to about 93,000 apartments.
The Director General of the Geocartography Institute (under the Central Bureau of Statistics of Israel), Dr. Rina Dgani, notes that despite the increase in real estate transactions, the number of sales of new apartments increased only slightly – by just 3%. Transactions were actively concluded on the secondary market – according to experts, this is because prices for secondary housing are 10% lower than for new apartments.
Before starting the review of Israeli real estate, let's make a clarification. Two-room, and especially one-room apartments in Israel in our understanding are quite rare. Usually, the smallest housing is a 2.5-room apartment. Half a room is considered a "pinat ohel" – something like a dining room. It also serves as a hallway.
In two-room apartments, from the front door you enter directly into the hall, called here the "salon". A kitchen as a separate room is also absent in most cases, and our former compatriots install partitions on their own to make it separate.
In Tel Aviv, you can also find apartments consisting of just one single room – no kitchen, no corridor, no pinat ohel. But few people buy such housing. Apartments with 4-5 rooms are the most popular.
Eilat: Investments in a Resort
Israel owns a 12-kilometer stretch of coastline on the Red Sea. There lies the country's southernmost settlement – the 55,000-resident resort city of Eilat. By Israeli standards, Eilat is very remote from other cities. The nearest large settlement – Beersheba – is 240 km from Eilat.
Eilat real estate is considered the most expensive in Israel – Israelis compare it to Russia's Sochi. As co-owner of the Lerner real estate agency Elena Lerner told us, prices per square meter in Eilat are as follows: new apartments from developers – $1,500-1,800, apartments on the secondary market – $1,200–1,600, cottages – $1,400-2,200, villas – $2,000-6,000, penthouses – $2,500-5,000. For example, a 6-room three-story Eilat cottage with an area of 220 m2 costs $320,000. A seven-room villa (450 m2) will run half a million dollars. And a 4-room apartment with an area of 130 m2 with two toilets, a bathroom, and two showers will cost $140,000.
Investments in Eilat were considered profitable even during the period of falling real estate prices, since the resorts operate year-round, and housing for rent is chronically scarce. Rent gives an annual profit corresponding to 6-14% of the cost of housing. And from roughly the second half of 2006, prices for Eilat real estate began to rise.
From Tel Aviv to Netanya
The country's second-largest city, Tel Aviv, competes with Eilat for the right to be the most expensive. There are apartments here for $3 million. We came across an ad for a one-room apartment being sold for $716,000. But, if in absolute prices Tel Aviv surpasses Eilat, in terms of average price per square meter it lags somewhat behind.
Housing prices are also rising in the capital Jerusalem. This especially applies to new buildings. However, according to the director of the Ivanovim agency Olga Ivanova, 40% of buyers prefer new homes. Nevertheless, as realtors note, due to price increases in Tel Aviv, Jerusalem, and Beersheba, apartments in small towns are now in greatest demand: Kfar Saba, Modiin, Netanya, Karkur, Beer Yaakov, and Petah Tikva.
Mortgage at 4%
Yes, the mortgage compared to ours is reasonable. The state mortgage system is called "mashkanta". As Olga Ivanova explained to us, it is provided for 28 years at 4.21% per annum. Mashkanta covers 80% of the housing cost, and the remaining 20% the borrower can take from any bank at an average of 7%. Many banks calculate such a loan not in dollars or shekels, but in Swiss francs.
Mashkanta is available both for Israeli citizens and for foreigners. If a person has lived in the same apartment for 15 years and has not bought additional real estate, after 15 years the state gifts them the unpaid balance of the mashkanta. But if after that the person still buys another property, the state will demand payment of that balance.
For example, in the resort town of Netanya, a two-room 62-meter apartment with a shower, without a bathtub, but with a custom-made American kitchen is offered for a mashkanta. Its cost is $275,000. The monthly payment (together with all bank commissions) will be about 5,000 shekels ($1,400).
By the way, about shekels! According to Olga Ivanova, 80% of landlords and 70% of sellers prefer to take payment in shekels – the dollar's authority is rapidly falling.
Shamai Will Lower the Price
By the way, very often newcomers to Israel, not knowing the prices, may overpay for an apartment. Therefore, Olga Ivanova advises turning to a shamai (not to be confused with a shaman) – a professional appraiser. He will not only check the legal purity of the apartment, find out whether all the numerous taxes and payments to the Land Administration have been paid, but also significantly reduce the price of the property for a small percentage. For example, in Olga's practice there was a case where a shamai reduced the price from the initial $140,000 to $65,000!
"Under the Hammer" Cheaper
As Vladimir Sandler, director of the agency "ATsMAUT", told us, the practice of buying so-called "bank apartments" is also widespread in Israel. This term, which originated and became established in the Russian-speaking environment of Israel, does not quite accurately reflect the situation and is unfamiliar to native Israelis. The essence is that an apartment, house, plot of land, or any other real estate is sold at auction by court order due to the owners' failure to fulfill their debt obligations (or as part of property division). The sale under the law on judicial enforcement is carried out by a court-appointed kones nehasim (property manager), usually a lawyer. As shown by real estate listings, prices for such apartments can be 20-25% below market value, and this is the main attractive feature of such deals.
For example, a two-room (in Israel, as in our country, they measure not by bedrooms but by rooms) "bank" apartment with an area of 49 m2 in Haifa on Hermon Street is sold for $29,000. The price of a similar apartment on the same street, but sold by the owner himself, is $36,000.
Tax cuts for foreigners
Most experts attribute the current price increase to the abolition of certain taxes that previously applied to foreigners. For example, a foreign investor is now exempt from paying a tax called "mas shevach". As Tel Aviv lawyer Boris Bronstein explained, mas shevach is paid when income is received from the sale of an apartment. That is, if you bought an apartment for 200,000 shekels and sold it for 220,000, it was this 20,000 difference that mas shevach previously "ate up". The abolition of this tax now allows a foreigner to be a real investor. And indeed, there have been significantly more investors. If in 2005 their share of total buyers was 3%, it has now reached 4.9%. True, it is still far from the 1995 level when this share was 7.5%.
Now, according to an amendment to the tax law that came into force on August 13, 2007, a buyer of a first apartment in Israel is also exempt from the purchase tax called "mas rekhish" if his apartment costs less than 850,000 shekels ($237,000). And since January 29, this threshold has been raised to 925,000 shekels ($259,000).
Another factor that increased demand was the repeal of the law that prohibited unregistered married couples from purchasing real estate as joint property. Previously, young people living in civil marriages were forced to rent housing. That is why the increase in sale prices is accompanied by a decrease in rental rates. For example, in some areas of Tel Aviv, the rental cost of a typical "two-room" apartment has decreased by 3.5-5% to 4,260 shekels per month ($1,190).
On average, a square meter in Israel costs: Haifa - $1,070, Beersheba - $1,390, Tel Aviv - $1,420, Eilat - $1,480.
The conclusion can be drawn as follows. The tax abolition initially caused a 35% increase in demand, but according to our experts, this source has already dried up, and in the last two months no increase in demand has been observed. Moreover, in February, a 15% decrease was even expected, which would also lead to some price rollback. This is interesting information for those who would like to invest money in Israeli real estate.