Real Estate Investment opportunities in Jerusalem
By Alyssa Friedland
Most buyers are wondering if the Corona has had an impact on properties values in Jerusalem and in Israel as a whole. The truth is, the government and the banks were actually very sensitive to homeowners during the first few months of the Corona epidemic ,and offered mortgage holders a 3 month reprieve from paying their mortgages from March through June of 2020 . This didn’t mean that they weren’t responsible for the payments altogether. The amounts were simply amortized into the term of their mortgage period, so a small increase would occur every month from June onwards. This slight reprieve however did help homeowners “breathe” during a very difficult economic period and thereby avoid foreclosures or desperation to sell, because they could not afford to keep up their payments. And so , the answer to the above inquiry is no, the Corona has not had a severe effect on the market, and prices are stable. In years to come, this will only be seen as a “blip” in the real estate market in Israel.
There are some homeowners , however ,who are predicting job uncertainty in the future, and are looking to sell their homes, reap the equity in order to live off of, and find rental opportunities instead . Theses sellers are not desperate to sell, but they are creating an increase in supply ,and therefor more inventory is on the market . In some neighborhoods of Jerusalem, this has transformed a sellers market into a buyers market . Opportunities exist in the market , but the savvy investor must know were to look.
Investing in residential Real Estate is Jerusalem is similar to investing anywhere in the world. The savvy investor needs to consider all the factors and look at the purchase as a business decision rather than an emotional one. Understanding the numbers is crucial and will make a big impact on profit in the long run. Investors should take into account, not only the ROI ( return on investment ) , but also the appreciation value over time, since most investors will be holding the property for a few years . Jerusalem is not a city for “flippers” , investors who buy run down properties, renovate them and sell them immediately, since most Jerusalem home buyers actually prefer the unrenovated homes, and then renovate to their needs and desires. Many investors who have bought property in Jerusalem have purchased based on the financial advantages as well as a spiritual need to own a home in Israel .
Although ROI’s ( return on investment ) figures in Jerusalem are lower than many other opportunities in the U.S. and other parts of the world, the appreciation has been outstanding over the last 15 yrs and more than made up for a lower ROI . In Israel rental prices are much lower relative to the purchase prices , and this is what contributes to the lower ROI on a yearly basis. Due to the shortage of housing in Jerusalem, property prices have risen between 15-20% yearly in most of the Jerusalem neighborhoods. The effect of the Corona has increased the inventory so there are more properties now on the market for the investor to choose from. Although prices have not come down very much, they have stabilized ,and opportunities can be found.
Neighborhoods that had seen the most appreciation were neighborhoods that catered to foreign buyers such as Rehavia, Talbeih, Baka, German Colony, Shaarei Hesed, Mamilla area, and Old Katamon. Even these areas are now seeing a stabilization in prices due to the lack of foreign buyers coming into the country , especially for peak holiday seasons, when they would purchase the higher priced homes. Today many of the high end homes are selling to wealthly Israelis, but at a 15-20 % reduction in price. Two lovely homes of over 250 sqm in Baka and in Talbeih recently sold for 12,500,000 NIS and 13,000,000 NIS respectively , and were both asking over 14,000,000 NIS when they went on the market 6 months ago.
. Investors seeking lower prices homes should look at the “bordering ” neighborhoods. (neighborhoods near areas that have already seen appreciation) or peripheral areas of Jerusalem. These neighborhoods usually cater to a younger element of buyers, such as young couples, families and olim chadashim ( new immigrants) who want communities that are welcoming and affordable.
These areas usually have a high demand for rental properties as well, so investment apartments can be easily rented out and occupancy will be consistent.
Here are 10 tips you need to know when purchasing an investment property in Israel:
- Get information regarding desirability of the neighborhood (% of renters in the area) and anticipated ROI in that neighborhood.
- Understand tax implications both in Israel and your country of residence. Speak to a qualified accountant or real estate lawyer in Israel and abroad.
- Use a real estate agent that specializes in the area of purchase. They can give you an overview of the neighborhood, and are very current with the rental trends and price fluctuations in the area . They are also usually the first to know about distress sales or pending bankruptcy issues .
- If you don’t know exactly what neighborhood you want to invest in, speak to the broker /owner of a reputable office who will guide and advise you .
- Know your finances, and get per-qualified if you need a mortgage. Foreign buyers can only get 50% mortgages, so you will need to have 50% of your own capital to put down. The good news is that, Bank of Israel rates are low , so mortgage rates are currently very attractive . Your real estate agent or attorney can suggest a good mortgage broker who can give you the current rates and various options available.
- If you plan to make aliyah within 18 months of purchasing the property, let your agent or attorney know, since it will impact greatly on your closing costs and taxes. Instead of an 8% purchase tax, the rate can be reduced by half or more, depending on the price of the apartment being purchased. For example, a purchase of a property under 1,700,000 NIS will incur a purchase tax of ONLY 0.5% if the purchaser makes aliyah within 18 months.
- Understand your income tax implications after the purchase, relating to the rental income you will be making. In Israel, the rental income is exempt if it is under 5,000 NIS per month . Anything over that can be calculated a different few ways, so its best to consult an Israeli accountant.
- A big advantage of being a landlord in Israel is that the tenant pays the yearly property taxes and condo fees associated with the property. The owner only has to pay for major repairs to the property or common repairs to the building if needed in the future. As for property insurance, the owner covers the structural system of the property and the tenant covers their contents.
- If you intend to live overseas , it s advisable to have a property manager handle your investment property in case any major repairs are needed during the rental period, or to replace a tenant and advertise for a new one.
- The best advice when purchasing any investment is always to GET ADVICE . Consult with professionals in the field and ask questions. Be a knowledgeable consumer. This is one of the largest purchases most people will make , so do it wisely .
Below are some of the neighborhoods where prices are still reasonable and investors may want to consider investing in:
Rasco neighborhood :
This neighborhood borders Rechavia and Old Katamon .It is centrally located, with close proximity to the center of town , excellent public transportation and easy access in and out of Jerusalem . The prices of the apartments are lower than those in Rechavia and Old Katamon, and there is high rental demand from students and young families. The ROI Investment is relatively high for Jerusalem , for example a 3 room ( 2 bedroom) apartment was recently sold on Tchernochovsky st. for 1,600,000 NIS , and is now rented for 4,700 shekels a month ( ROI 3.5% ) The neighborhood provides a high quality of life , with good schools and community centers . With very little land available to build in the area, the appreciation value is expected increase considerably over the next 5 yrs.
Nachlaot Neighborhood :
The area of Nachlaot that is still in the process of being re-gentrified and although not many bargains are available in the historic section of Nachlaot which was first built in 1872 ( one of the first Jewish neighborhoods outside the Old City walls.) the original structures feature authentic arches, mosaics and are truly one of a kind opportunities. The authenticity of these properties make them highly desirable , and some investors buy them for their unique historical significance. Nachlaot is situated between Agripas and Bezalel streets. Close to this quaint historic area lies the neighborhood of Machane Yehuda ( shuk area) and the City Center, which is situated between Agripas and Jaffa street. There are still bargains to be found there for investors and the price per sqm is cheaper than in Nachlaot proper ( which is right across the street) . Prices in Nachlaot have more than tippled in the past 15 years and current prices average about 30,000 NIS per sqm.
One example of a very good investment on the classic side of Nachlaot is a property on Mitzpe street. This 5 room duplex apartment is 115 sqm, with roof rights and a lovely succa balcony overlooking Gan Sacker and the Knesset .It can be rented for 9000 NIS. Asking price is 2,850,000 NIS ( ROI 3.8% ) .
Bordering the lovely neighborhood of Old Katamon / Kiryat Shmuel is a neighborhood that was built in the 50’s and housed lower income families who had immigrated . This area is now being pegged as an opportune area for potential investors. Tama 38 and Pinui Binui projects are opping up everywhere,and savvy investors can purchase the run down original properties at excellent prices and realize additions of 20-25 sqm of space, elevators and improved facades and structural foundations due to the Tama 38 incentives that are offered
Many National Religious( Kippah Sruga) young families, who cant afford Old Katamon are purchasing here. The area has good educational institutions , synagogues, , cultural activities etc. With the next extension of the light rail servicing this neighborhood, it will definitely become one of the preferable neighborhood in Jerusalem.
Armon Hanatziv / Arnona :
These two neighborhoods have become the haven for all the Baka wannabees. With prices in Baka out-pricing the young family market, Arnona ( across Derech Hevron ) and a 10 min walk to all the “In Shuls” in Baka , has become a vey attractive neighborhood for both Young families and Investors alike. Both Arnona and Armon Hanatziv offer excellent schools, transportation and cultural venues . It has become very popular with the “Young Israel crowd ” of Anglos as well. The welcoming and friendly atmosphere is evident even in their community facebook group. Prices are very reasonable ( from 16,000- 24,000 nis per sqm) and have not escalated like Baka ( starting at 30,000 nis per sqm) .
The big advantage here for investors is the new American Embassy that is being built on the border of Arnona and Armon Hanatziv. Within the next 3 years, this will bring approx 500 employees requiring rental housing in the area . The embassy personal are usually given hefty housing allowances and therefor any rental in the area ill have a tremendous advantage and generate higher than average ROI’s. For nicely furnished apartments , ROI’s will get up to 6-8% easily , which is high for other neighborhoods in Jerusalem which average 3.5-4%. Scarce plots of land in the area for building, will also be to the investors advantage, as demand for the area increase and supply decreases.
In closing , there are many opportunities still available in the Jerusalem real estate market for the savvy investor. The best results will be based on becoming a knowledgeable consumer and getting as much advice as possible from qualified professionals in the field.
Alyssa Friedland, author of this article has 25 yrs experience in the Jerusalem Real estate market and can be contacted for a free consultation regarding real estate investing in Israel. She is a Real Estate agent for RE/MAX Vision in Jerusalem