10 Reasons Why Israeli Rents are Rising

Rents UpRental prices for homes in Israel’s central region are rising fast, giving real estate investors an even better annual return. Shaun Isaacson from Creative Estates explains why.

Summer 2015 is proving to be a hot summer for the real estate market, and rental prices are continuing to rise. Creative Estates has raised the rents on all of its properties by 5% over the past year, and continues to attract and retain excellent tenants. In some countries it is predominantly poorer people who rent properties, but in Israel it is considered normal for well-paid individuals, couples and families to rent a home for many years, for a number of reasons.

1) Israeli Banks are reluctant to lend – it’s difficult and expensive to get a mortgage to buy a property in Israel.

2) 30% deposit required – for an average home costing 1.8 million NIS, a young couple has to come up with 540,000 NIS ($142,000)

3) Mazal Tovs! – the marriage rate in Israel is still high – 50,000 couples tie the knot each year, generally leaving their parents’ home and renting an apartment.

4) Incoming Olim – Aliyah is still increasing, from France, the Ukraine, India, and all over the world, and most new immigrants to Israel start out renting.

5) Limited Space – Israel is a relatively small country with an increasing population, and there are also political reasons why developers cannot get permission to build in many areas.

6) Regional Concentration – Israel’s population is still highly concentrated in the Mercaz area – particularly the Sharon and Gush Dan regions where the well-paid jobs are, which keeps prices high in these areas.

7) City Life – Singles and couples tend to rent apartments in the city for a few years while saving money to buy a house in the suburbs or somewhere more family-friendly.

8) Focus on Luxury – Real estate developers are still building more high-end properties designed for wealthy overseas investors and fewer affordable homes for young couples and families.

9) First Time Buyers – the new government elected in May 2015 has promised to help first-time buyers, so many are waiting to see what measures will be introduced before they buy.

10) Rent Control Plans – rumors of government plans to control rent increases to 3% per year will not dampen demand or limit price increases. In fact, we expect 3% annual rent increases to become a standard contract term, even when inflation is much lower!

Shaun Isaacson is a qualified lawyer and realtor and has an MBA in Finance. He is CEO of Creative Estates Israel, which provides investment and property management services for property owners in Israel.

Spotlight on Rosh Ha’Ayin

The Israeli government has signed up to build 10,700 new homes in Rosh Ha’Ayin, in addition to a new neighborhood of 5,000 homes that are already on the market. Shaun Isaacson explains why this makes Rosh Ha’Ayin particularly attractive for Israel real estate investment.

RoshHaAyin MapThe plan in Rosh Ha’Ayin is the third “blanket agreement” between all the government ministries for the rapid sale of land in high-demand areas, designed to expand the infrastructure and housing market in popular cities. The agreement guarantees developers building permits within 90 days, speeding up the construction of residential homes in areas of Israel where there is strong demand and a shortage of affordable housing. Similar projects are underway in Kiryat Gat and Modiin, with a ‘master plan’ to build 100,000 new homes in Israel over the next 2 years.

Since population growth is strong and the Israeli economy is buoyant, with low interest rates, there has been pressure on the Israeli government to increase the supply of affordable homes – this was one of the main issues raised by the summer protests in 2012. There are many individuals and couples waiting for the opportunity to move out of their parents’ homes and buy their first apartment. The Bank of Israel is committed to keeping interest rates low in order to facilitate this. While the prices of apartments are expected to fall in 2015, we believe that demand will remain strong and prices will soon return to their current levels.

In Rosh Ha’Ayin, the planned new housing projects will effectively double the population of the city, which is already attracting young families because of its excellent quality of life. It has been planned as a ‘village city’ with excellent parks and sports facilities and the Migdal Tsedek leisure and cultural center. It is located just 12 miles east of Tel Aviv, near the source of the Yarkon River, and it has become a focus for the oil and natural gas industry, with associated infrastructure and technology projects opening up job opportunities.

Under the new plan, infrastructure projects and public buildings will be built at the same time as the apartment buildings, speeding up the development of the city and creating excellent opportunities for rapid returns on investment. Since the prices of new-build projects in Israel typically increase by at least 25% in the first 5 years, there will be great opportunities to buy the new apartments being planned for Rosh Ha’Ayin as buy-to-let investments.

Comparing Average Home Prices around Israel 2008-2013Israel Home Prices Chart

Data courtesy Madlan, February 2014

Looking back, we have seen a 62% increase in average home prices in Israel since 2008, during which time prices in the Center of the country rose by 88%, in the Petach Tikva area by 82% and in Rosh Ha’Ayin by 71%. Since Petach Tikva is now developed and arguably saturated, the new plan to develop Rosh Ha’Ayin will drive prices higher as it become the most sought-after place to live.

To find out more about residential or commercial real estate projects and investment opportunities in Rosh Ha’Ayin and other fast-growing cities in central Israel, contact Creative Estates Israel today!