HOW TO INVEST IN ISRAELI RESIDENTIAL REAL ESTATE – 2020 UPDATE

by | Sep 28, 2020 | Real Estate | 0 comments

As Israel receives a record number of immigration applications from all around the world, we look at some good practices when investing Israeli Residential Real Estate.

The Middle East’s shining light for democracy has evolved from a startup nation to a scale-up nation, without compromising on its pursuit to bring technology solutions to the world. 

As analysts share their predictions on the longevity of the global pandemics adverse economic consequences, many investors are left with the dilemma ‘how do I diversify my investment portfolio?’

 

Tel Aviv and Jaffa Real Estate is considered Prime real estate; Courtesy Unsplash

 

Israel has faced dramatic house price rises in the past decade (2011 excepted), despite domestic political uncertainty, security threats, and the global financial meltdown in 2006. 

With protectionist measures by the Israeli government, buying property as a non-Israeli citizen is not as straight forward as in some countries. Therefore getting professional advice experienced Israeli legal team is absolutely essential. 

INVESTING IN ISRAELI PROPERTY DURING COVID-19 PANDEMIC

With the Israeli Government strongly advising the nation to work from home where possible, demand for commercial real estate in Israel is expected to fall, along with property value, as only recently has Israel gone into a second lockdown.

The Jewish Agency, which manages emigration into Israel, is expecting immigration to Israel to rise to a staggering 100,000 in light of the worldwide Covid-19 pandemic, and subsequent economic slowdown.

 

Tel Aviv: Courtesy Tanya Chuvpylova

Restrictions on foreign investors

93% of Israeli land belongs to the government. Foreign investors cannot simply purchase or lease land held by the government, as they would with private property elsewhere.

Foreign citizens are not allowed to hold a lease on the state-owned land. Jewish citizens of foreign countries, who are entitled to immigrate to Israel under the Law of Return, may lease this land, provided they submit documents certifying said entitlement property lawyers.

Furthermore, investors who can demonstrate their eligibility for Israeli citizenship based on the Law of Return will be exempt from a number of taxes that apply to foreign investors.

CAN non-Israel citizens invest in Israeli Residential Property?

There are several ways for non-Jewish foreign citizens to invest in real-estate opportunities on land that belongs to the Israeli government. 

Special approval to lease land held by the Israeli Land Authority can be granted to those who demonstrate said lease would contribute significantly to Israeli economy/society.

A foreign-established company and/or a non-profit organization with board members comprised primarily of Israeli citizens can also lease government-held land. 

Can Non-Israeli citizens invest in privately held land?

Yes! and it is far more simple to buy privately held land than Israeli state-owned land.

In most cases, “prime” real estate in Israel’s largest cities is on private land. However, competition is high, and there is always the danger of running into a seller trying to take advantage of a foreign investor.

The help of an Israeli real estate lawyer is essential, as they will perform a routine investigation of the property status to make sure it is free of encumbrances.

 

Investment Real Estate in Tel Aviv: Courtesy Daniel Lerman

 

9 Key Questions to ask yourself when Investing in Property in Israel:

  1. What is the land zoned for (residential, commercial etc.)
  2. Can the zoning be changed?
  3. Is the zoning in the process of being changed and if so how far along is it? (The answer will affect the worth of the land, the viability of the project and the time to see a return on your investment)
  4. Is there a building or land close by which is zoned for something specific? How might that affect the value of your property?
  5. Are there any future plans of the municipality to develop the area in any way, roads, park etc.  
  6. Does the structure have building rights and parking access?
  7. Can those building rights be used or can they be sold and transferred to another building?
  8. Are there protected tenants in the building? (This is a critical question because if there are protected tenants they need to be compensated in order to vacate the property and this could be expensive).
  9. Is the property correctly registered in the owners name, with all the necessary permits?

 

Tel Aviv; Courtesy Dan Gold

 

5 key tax questions you should be asking your Israeli Lawyer;

  1. How much is the purchase tax on the property?
  2. How much will the capital gains tax be upon selling the property?
  3. Is there a way to minimize any possible tax liabilities?
  4. Would it be better to put the property in the name of a family member instead of in your own name?
  5. If the family member has family who might stand to inherit should the property be put in the name of a trust?

It is worth mentioning that alongside the existence of formal rules, there are a lot of unwritten ones. Therefore it is highly recommended to consult an Israeli Real Estate Lawyer before embarking on this journey.

Acknowledgements, and further reading:

> Other investment options include; Startups via Israeli Equity Crowd investing,  and Managed Funds on Israel’s Capital Markets

> Join the Open Middle East LinkedIn Community and subscribe to the Open Middle East youtube channel.

> This does not constitute investment advice. Investors should review all risks entailed in their investments and make their own investment decisions based on their absolute discretion.

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