Real estate investment in Israel: Where is the best place to buy an apartment?

If you are buying a home or a vacation apartment, you probably have a good idea which areas interest you. However, when you are making a real estate investment in Israel, you should widen your search and consider other areas across the country.

Yield vs profit

Like any form of investment, there are two important factors that you need to investigate—the yield from the rental of the apartment and the potential profit that you stand to gain from the sale of the property. The relevance of these two criteria can differ among investors, and may depend on your budget as well.

Consider the following example: If you had invested 4 million shekels in an apartment in Tel Aviv last year, you could likely sell it today at a profit of 5% and earn 200 thousand shekels.  However, the yield on the property would be relatively low (3-3.5%).  In contrast, you could receive a far better yield of 6% on the rental of an apartment in Tiberias for which you paid 400 thousand shekels, and the profit from selling could be as high as 20 percent or 80,000 NIS. Someone who has a budget of 4 million shekels may want to consider the option of buying several apartments in the peripheries in order to gain significantly more than by investing in one apartment in the central part of Israel. (Note: one should also consider the tax implications of owning more than one apartment both on the buying and the selling side of each transaction.) 

Real estate appreciation in major cities

In the past seven years, the value of residential apartments in Israel has appreciated by tens of percentage points. Haifa leads increased prices in major cities with 107%. Beer-Sheva is in second with 92%. Tel Aviv follows with 84%, and Jerusalem has seen prices rise by 56% in the last six years. During the same period, rental fees for apartments across the country rose by about 50 percent on average, particularly in central Israel.  In 2015, despite government efforts to lower housing costs, prices continued to rise on average by around 5% across the country. Real estate experts in Israel say that apartment prices are unlikely to go down in the foreseeable future and that a downward movement would endanger the banking system.

This gives one good reason to invest in real estate in Israel – even in those cities where an increase in prices has been observed.  The question is, where are the hottest areas in Israel to invest this year?

Tel Aviv & Central Israel

Despite soaring real estate prices, Tel Aviv remains the area of the country in the highest demand for both rental and purchases. Since there is simply not enough free land for construction in the center and north of the city, investors are turning to the south of Tel Aviv. For example, investors who bought apartments ten years ago in the Florentine neighborhood have seen the value of their apartments multiply.

There are still some bargains to be found in south Tel Aviv. In Yad Eliyahu, for example,  most home-owners are old-time residents who have been living in the neighborhood for decades.  It is worth investing in the older apartments in the Yad Eliyahu neighborhood because they are likely to be redeveloped under the “pinui binui” scheme or urban renewal plans which will significantly improve their value. Already, new residential buildings have been developed in the area showcasing apartments that have been purchased by young couples who wish to stay in Tel Aviv. This fresh trend is raising the socio-economic level in the area and is causing real estate values to rise.  You can find spacious 4 room apartments in Yad Eliyahu at 1.5 million and receive 5,000 NIS in rent per month.

Jaffa is another area in the southern Tel Aviv area that has attracted a large number of investors in recent years. The Tel Aviv-Jaffa municipality has been gentrifying and investing in the infrastructure of the Jaffa port sections which has already attracted artists, intellectuals and a high socio-economic population. As such, real estate prices in Jaffa have risen sharply in the last few years, and the prices of luxury apartments are comparable to those in Tel Aviv. Jaffa is marked as a development area with unique character and many consider it to be the “next” Neve Tzedek. In recent months, however, demand in Jaffa has moderated, most likely because of the current security situation in Israel as Jaffa has a mixed Jewish and Arab population. This presents opportunities to enter negotiations with sellers and purchase properties at lower prices.

In the central region, one should also consider the surrounding cities of Tel Aviv, namely Givatayim, Ramat Gan, Bat-Yam (which offers sea-view apartments in luxury towers at half the price of bordering Tel Aviv), and Rishon Lezion. There are new apartments on offer as well as old apartments which have significant potential for improvement.

Afula, Nesher & The Kiryot

Ha’Emek Railway (the Jezreel Valley Railway) that connects Haifa and Beit She’an via Afula will begin operating later this year. The train will cut the travel time from Afula to Haifa to 17 minutes. Afula offers high quality of life and relatively low prices for apartments – you can purchase a 4 room apartment for less than a million shekels, with a yield of more than 4%. Nesher, also on the rail-route, offers a similar yield. Although prices have increased in Haifa by more than 100% in the past seven years, there are still some cheap apartments in Haifa with potential for improvement, mostly in the surrounding Kiryot (a cluster of five small cities founded in the 1930s in the Haifa Bay area). Bear in mind, there are two major universities in Haifa and the demand for rent is constantly high.

Kiryat Gat, Dimona & Eilat

The South continues to see price increases and good investment opportunities can be found throughout, particularly in Beersheba.

The bottom line—Israel is a small country, yet there are many different areas with good opportunities for real estate investment. Investing in property in Israel can be immensely lucrative, but before you do it, make sure you truly understand what is happening in the area, the city plans and wider influences on the neighborhood, the market values of local real estate, the potential for profit on your investment, and the tax implications of each transaction. It’s crucial to work with  professionals who understand these important factors and who are deeply familiar with the market you are interested in.

For more information, or if you require assistance in purchasing an investment property in Israel, please contact us.

© Copyright 2016.

The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

Interested in buying a home or investing in real estate in Israel?   Contact Buy-It In Israel using the form below: