Israeli Real Estate: 5 Factors to Consider

For the potential investor in real estate properties in Israel, it can be helpful to have an understanding of some of the primary trends and characteristics of this particular market. They largely address the driving issue of supply vs. demand in today’s market. Below are five factors to consider in examining Israeli real estate investment: 1. Housing prices are on the rise and show no sign of slowing down. Between 2007 and 2013, they increased by 53%, adjusted for inflation. This rise is due to low supply vs. high demand for properties, as some of the trends below will further explain. Rental rates also remain on the rise, a fact that creates a financial boon for landlords. 2. Many Israelis own more than one apartment, and the share of homeowners with multiple units has almost quadrupled in recent years. As might be expected, high-income families are mainly responsible for this trend. 3. The waiting time to obtain residential construction permits is historically long in Israel, and that trend continues. The process takes up to 13 years, as compared to 2-3 months in most European Union countries. This extreme delay, coupled with a lack of available land, leads to greater demand vs. supply in the Israeli housing market. 4. Unlike in other democratic, first-world countries, the state and it agencies own the great majority of the land in Israel (93%!). As a matter of fact, the top three landowners are: a. The Government of the State of Israel at 75%; b. The Jewish National Fund (JNF) at 13%; and c. The Israeli Development Authority at 12%. The government does offer 99-year leases on land, but outright ownership of private property is rare. 5. A large number of foreign property owners do not tend to rent out their properties, although they live abroad. Many apartments sit empty for most or all of the year. Some property owners may use them a few times a year for the Jewish holidays. Again, such a practice creates a demand for apartments higher than the available supply. 6. Most importantly, Israel’s real estate market continues to mature, and its short- and intermediate-term prospects for growth and stability appear excellent. Some of the real estate trends in Israel mirror those of economies around the world, while others are uncommon; e.g., private sector domination of construction and market development vs. government sector domination of the land market. Whatever its other characteristics, Israel maintains a very active and healthy real estate market today.