Why Buy a Home in Israel?
From high returns on investment, profitable income yields, and portfolio diversification, to a range of emotional factors that don’t fit into any financial or investment formula, there are plenty of motivating factors for Jews around the world to want to own property in Israel. Here are our top 5 reasons to buy your home in Israel:
1. The value of Israel real estate has increased steadily for more than a decade
Buying a home in Israel is considered a solid investment. There is constant, high demand for apartments, alongside limited supply of available land. This imbalance maintains a high, steady market value. A drop in housing prices is rare, and when it does happen, it is usually minor and temporary.
Since 2008, the value of property in Israel has increased at an average rate of 10% per year, a high return on investment relative to the low level of risk. Between 2007 and 2015, apartment prices rose by about 100%. Over the past five years, the government made concerted efforts to curb the rise in prices by significantly increasing purchase taxes, among other measures. Nevertheless, prices continued to rise, albeit at a slower pace.
Over the past year, against the backdrop of the economic crisis caused by Covid-19, the government has canceled the purchase tax increase and the subsidized housing program for first-time buyers. These measures are expected to allow the prices to continue to rise, although this will probably not happen in the immediate future, while the Israeli economy is still reeling from the effects of the pandemic. However, according to various estimates, including that of the Bank of Israel, prices are expected to rise again in the long term.
2. Landlords can depend on steady yields from their investments through rental income
In general, the rental market in Israel, which relies heavily on private apartment owners, is considered to be a strong and stable market. Along with purchase prices, rent has also risen steadily over the past 13 years. While this trend has briefly paused over the past six months as homeowners have been more flexible due to the economic effects of Covid-19, landlords still have almost full occupancy of their rental apartments, and it is rare to come across an empty unit without demand.
The cost of homes in Israel is relatively high, especially in the two main areas of demand – Tel Aviv and its surrounding cities (known as “Gush Dan”) in central Israel; and Jerusalem. In these areas, the yields on rental property are not particularly high, however, in the peripheral areas, where more affordable housing can be found, it is possible to reach yield levels of 5% or more.
A recent study in Israeli business newspaper Globes found that in Dimona, located in the heart of the Negev Desert, the average yield on an investment apartment is 6%. In other cities in the periphery, such as Bet Shean, in the Jordan Valley, and Nesher, located just south of Haifa, the yield can also reach above 5% in certain neighborhoods. However, even these areas have seen a moderate rise in apartment prices in recent years.
Those looking to purchase a home in Israel as an investment must decide on which parameters to base their decision. If the goal is capital gains from the increase in property value, then the areas of high demand in central Israel are probably a better route. If buyers are looking for a stable return from rental income, then investing in peripheral areas makes more sense.
3. Buying property in Israel is an excellent way to diversify your investment portfolio and reduce risk
Nowadays, smart investors are careful not to put all their eggs into one basket. Focusing on one commodity, whether it is stocks, gold or real estate, exposes investors to too much risk in the event of a crisis in that particular industry. This approach is even more important today, as the global economy faces a severe economic crisis.
Now more than ever, investors must diversify their portfolios. Beyond real estate being a solid investment in and of itself, a home in Israel benefits from the unique characteristics of the Israeli market. With a population increase of 2% per year, one of the highest in the Western world, the Israeli real estate market maintains a very high level of demand. Because of the small size of the country and the limited amount of land zoned for residential construction, apartments in Israel are a commodity with constantly increasing value. Investing in residential real estate in Israel is a simple way to reduce risk in your investment portfolio.
4. Owning property in Israel is an important safety net in the shadow of rising global anti-Semitism, political unrest, and financial stress
Even before the outbreak of Covid-19, anti-Semitism was growing steadily throughout Europe and North America, appearing in ways not seen in the western world since before World War II. Terrorist attacks in synagogues, kosher delicacies, and Jewish schools became more and more common, and anti-Semitic sentiments that people previously kept to themselves were suddenly expressed publically at demonstrations and in the press.
These phenomena have only gotten worse during the pandemic, and Jews all over the world are facing unprecedented levels of hatred and hostility. To add to this, political unrest, financial stress, and the uncertainty that Covid-19 has brought the world over, many Diaspora Jews have decided to buy a home in Israel so that in the event that these trends continue, they know that they have a safe place waiting for their families in Israel. Buying real estate in Israel could mean investing in the safety of your family, as well as your own peace of mind.
5. Israel is the ideal location for a summer, holiday, or retirement home
Owning a home in Israel can be an enjoyable and worthwhile investment, even if it will not serve as a primary place of residence. An apartment near the beach is perfect for family vacations, while nothing compares to having your own place in the Holy Land for the High Holidays, Passover or Shavuot.
For those who have always dreamed of making Aliyah, but have business or family obligations elsewhere, buying a home in Israel is one way to take a step toward realizing the dream, even if the benefits are only reaped after retirement or enjoyed by future generations.
Finally, of all the good reasons to buy a home in Israel, the following idea that was shared by the late Rabbi Lord Jonathan Sacks z”l, seems to fit all. While Rabbi Sacks and his wife were once on vacation in the southern resort city of Eilat, they took a trip in a glass-bottomed boat to see the tropical fish and beautiful corals in the protected reefs. The captain overheard Rabbi Sacks and his wife talking and asked them “are you from England?”. He had just returned from a holiday there and told them how “The grass (is) so green; the buildings so old; the people so polite” but with a big smile he spread his arms and looked around at the barren desert hills and said, “aval zeh shelanu — but this is ours!”
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.
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