As residential real estate in Israel continues to be a popular investment choice and prices remain higher than ever, Buyitinisrael set out to investigate the yields that investors can expect to see. While in the southern city of Be’er Sheva, investors can enjoy a return of 4%, in the central city of Tel Aviv, they are getting a mere 2%. The numbers beg the question: why is Tel Aviv still Israel’s most popular location for real estate investors?
In the city of Be’er Sheva in the south of the country, the annual return on residential real estate investment, or ROI, is the highest in Israel, standing at almost 4%. Meanwhile, Tel Aviv has the lowest return, at only 2.1%. These numbers come from an analysis of data recently published by the Central Bureau of Statistics (CBS), which includes the average prices for buying and renting apartments in the fifteen largest cities in Israel during the last quarter of 2021.
A look at the purchase and rental transactions of 3-room apartments, which are particularly popular amongst investors, shows that the return on investment from rent is highest in Be’er Sheva. While the average price of a 3-room apartment in the city is NIS 770,000, the average rent was about NIS 2,470 per month, indicating an annual return on investment (ROI) of 3.9%. Ranked second in terms of returns – with an average of 3.6% – is the coastal city of Ashkelon, where the average price for a 3-room apartment is NIS 925,000, and the monthly rent is NIS 2,770. Next in line is Haifa, with a 3.3% return. The average price of a 3-room apartment in the city is NIS 961,000, and the average rent is NIS 2,642. In Rishon Lezion, the average ROI was 3.2% in 2021, followed closely by Holon at 3.1%, and then Ashdod and Netanya with average returns of 3%.
At the other end of the spectrum is Tel Aviv, where the purchase of a 3-room apartment gives investors a measly return of only 2.1%. In the bustling commercial capital of the country, the average price of a 3-room apartment in the last quarter was NIS 3.36 million, while the average rent was NIS 5,955 per month. In the nearby city of Ramat Gan, the average return stands at about 2.5%, with apartment prices of NIS 2.19 million and rent of NIS 4,536. In the holy city of Jerusalem, investing in a 3-room apartment also yields a return of 2.5%, with an average purchase price of NIS 1.9 million and an average rent of NIS 4,018. In both Bat Yam and Kfar Saba, the average return is slightly higher, at 2.6%, followed by 2.7% in Rehovot and 2.9% in both Bnei Brak and Petah Tikva.
When analyzing the returns for 4-room apartments in Israel, the cities are ranked in a similar order, but the ROI rates are lower compared to real estate properties with three rooms. Again, Be’er Sheva has the highest return – 3.45% – followed by Ashdod and Ashkelon, both with 3%. In Tel Aviv, apartments of this size sell for close to NIS 4.4 million, but the ROI still stands at 2%, almost the same as 3-room apartments. In Jerusalem, Ramat Gan, and Kfar Saba, the return for a 4-room apartment is about 2.4%.
When comparing the ROI of apartments of different sizes, the data reveals an inverse relationship between the size of the apartment and the size of the return. Investors enjoyed the highest return – approximately 3.47% – for small apartments of one and two rooms. Apartments of this size sell for an average of NIS 1.12 million, while the average monthly rent paid is NIS 3,245. Meanwhile, the average return on three-room apartments is roughly 3.37% (average price of NIS 1.32 million and rent of NIS 3,723). Four-room apartments yield a return of 3.14% (NIS 1.74 million and NIS 4,540, respectively) and five-room apartments have a lower ROI of 2.95% (NIS 2.32 million and NIS 5,740).
Given the data detailed above on Israel Real Estate ROI, it seems strange that Tel Aviv is the most popular city amongst real estate investors, despite the moderate returns. In order to understand why this city still has the largest amount of investment purchases every year, we need to look at another parameter — the growth potential. Tel Aviv, the most sought-after residential city in Israel and one of the most expensive cities in the world, has seen a sharp jump in real estate prices over the past few years, even when compared to the significant increase seen throughout Israel’s residential real estate market. It seems that those who continue to purchase apartments for investment in Tel Aviv and other areas where the yields are lower, even these days, do not do so due to the rent returns, but rather for other reasons, especially the expectation of an increase in value of Israel real estate in the long-term.