Raanana real estate – the year that was

 

It is quite safe to say that if Raanana real estate prices were heading in the direction of Hertzliya Pituach and Savyon, ironically the recent Operation Protective Edge, accelerated this trend.

Demand dynamics are the essential element propelling Raanana real estate prices upwards.

The  strongest factor behind an increased demand for rental and sales properties stems from immigrants and potential immigrants from Europe. The continued uncertainty and physical stress within many European Jewish communities experienced a spike during Operation Protective Edge.

Already on the map as a destination of choice for a wide variety of immigrants, Raanana  attracted a record breaking number of new immigrants in the summer of 2014.

It is too early to accurately assess the effects of this increased demand, as there is normally a lag-time in which the market recalibrates pricing. However it is early enough to say that pricing for newer, modern apartments  is at least 4 or 5 % above 2013 prices. Newer, modern apartments of 4 rooms with 100 sqm were selling for NIS 2,100,000 in 2013. Now they are selling for NIS 2,200,000.

When it comes to measuring luxury properties, Raanana becomes even more closely aligned with the pricing of Hertzliya Pituach and Savyon. With the immigration of wealthy foreigners to Raanana the demand for luxury homes continues to increase. Home sales in the range of NIS 10 million – NIS 15 million are no longer an exception. Homes in this category have appreciated by approximately 10% per year over the last few years. Luxury homes generally stand on plots of 370/400 – 750 sqm, with home sizes of between 350 sqm to 550 sqm, and have been built within the last 2 / 3 years.

As for the standard plots of 370 sqm to 380 sqm with older homes, where they are located in areas with strong Anglo and other immigrant communities, such homes sell for NIS 4,600,000 (generally to be demolished) to NIS 6,000,000 where the homes are renovated and provide at least 10 more years of comfortable usage. The supply of these homes is consistently weak with attendant price increases. These homes have likely appreciated 7-9% per year over the past few years

It remains to be seen what the coming year will bring. However I would bet on further price increases, based on the after effects of the large immigration Raanana is currently experiencing.

 

BEERSHEVA – ISRAEL’S REAL ESTATE FRONTIER

The run on Beersheva real estate that has been in play for at least the last 5 years shows no sign of slowing down. If anything, investor appetite for properties in this city will only intensify. 

In my opinion this is fully justified. 

While there are many periphery locations in Israel that present solid real estate opportunities, Beersheva stands in a class of its own. 

In many ways it was just a matter of time. However the coalescing of a number of factors have created the current real estate investment dynamics. 

Fantastic demographics

Starting from about 1991 Beersheva was the lucky recipient of tens of thousands of Russian olim. Mostly they came with nothing more then a suitcase. However they were educated, very educated, and hungry to achieve. Fast forward 20 years and they represent a hefty segment of Israel’s middle-upper class. My guess is that they have not finished their upward climb, and we will see more and more Russian Israeli’s breaking into the upper classes. 

Basic economics will confirm that a constantly improving ability to purchase more expensive real estate translates into upward price appreciation. There are sufficient examples of this exact dynamic in Israel. Tel Aviv, Raanana, Modiin and Zichron Yaakov immediately come to mind. 

Tel Aviv to Beersheva in 45 minutes

It is now entirely possible to live in Beersheva and commute to places of work in the Tel Aviv area on a daily basis. Since 2012 a high speed railway service connects Tel Aviv to Beesheva. The ride takes 55 minutes. This will be shortened in the coming years to 45 minutes. 

In addition, the Kvish 6 (Highway 6) now extends to Beersheva. This allows for a private commute of just over 1 hour from Beersheva to Tel Aviv. 

What this all means is that it is now entirely possible for the young families who cannot afford real estate in the Tel Aviv area to relocate to Beersheva without sacrificing on job opportunities. 

Advanced Technologies Park  

With an ability to capitalize on its well educated population, local engineering schools and the Soroka University Medical  Centre, Bersheeva is currently in the early phases of creating what will be Israel’s leading facility for promoting technology and the commercialization of cutting-edge research and innovation. 

As a joint venture between Ben Gurion University, the Municiplaity of Beersheva and the American company KUD International, a subsidiary of the Japanese based Kajima Corporation, the park is set to encompass over 20 buildings with a total area of approximately 200,000 square meters, including offices, laboratories and commercial areas. 

The first building covering 17,500 square meters was complete in 2013. The second building, covering 12,000 meters will be complete in the course of 2014. The park is slated to accommodate 12,000 employees. 

The park has all of the initial signs of another Israeli success story. Some reasons I am particularly fond of this project include:  

  • Companies such as Deutsche Telekom (its first outside Germany), EMC International, Lockheed-Martin, Elbit Technologies and NESS Technologies have already taken up research space in the park. In addition, HP, Oracle, Cisco, dbMotion, IBM and others have also indicated their intention of taking space in the park. 
  • Beersheva’s northern train station is located in the park, allowing for easy access from anywhere in Israel. 
  • The park is adjacent to  Ben Gurion University. This location eases a range of tasks, including joint research, recruitment, and developing in-house study programs. 

The park is located on the edge of the prestigious Ramot residential neighborhood. This will allow the various company employees to live close to work in one of Beereva’s top residential neighborhoods. 

Relocation of IDF technology and intelligence departments 

The decision to relocate the IDF’s technology and intelligence departments from Tel Aviv to the Beersheva perfectly harmonizes with all of the above factors. 

On it’s own, the immediate significance of this transfer is that thousands of IDF officer level personal will be relocated Beersheva and its immediate surroundings. 

Investment opportunities 

The most attractive real estate investments are those that allow maximized returns with maximized upward potential. 

Traditionally returns in Israel are nothing exciting. The magic in Israel real estate lies in its very strong price appreciation. However, Beersheva allows for more attractive returns. Unlike areas such as Tel Aviv, Raanana, Jerusalem and Netanya where annual returns very rarely exceed 3 %, current returns for good areas in Beersheva, such as Ramot yield in a range of 3.6 % – 4%. 

As in all areas with strong supply and demand imbalances Beersheva exhibits steep price appreciation. Close to completion, one of my projects in Ramot is currently selling 4 room apartments for NIS 960,000 as compared to selling prices of NIS 880,000 when the project commenced 14 months ago. For all intents and purposes, this appreciation in pricing will continue and even grow stronger, as the supply and demand dynamics becomes ever more imbalanced. 

For anyone interested in hearing more about investment opportunities in Beersheva please note that I am currently representing a number of developers in the Ramot neighborhood, as well as the developers of Beersheva Advanced Technologies park.

Trusts & Israel real estate – a new tax haven?

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Put your trust in property, put your property in trust.

Nice. But does this apply to real estate in Israel?

The short answer is yes.

Essentially, a trust is a legal relationship whereby one party (the trustee) “holds” property for the benefit of another (this can be for a third party or the original owner of the property- the beneficiary) . The trustee has legal title to the property but owes a duty to respect the wishes of the original owner.

The connection between trusts and tax planning is legend. It places a sufficient legal distance between the the original owner of the property and the actual property to enable many tax avoidance (not tax evasion) opportunities.

Since the passing of the Israel income tax reform it is possible to establish a foreign-resident trust created by foreigners which can hold real estate in the hands of an underlying company which is owned by the trust itself.

The significance of this is profound. The real estate is not registered in the Israel Land Registry in the name of a foreign resident but in the name of an Israeli registered company, which is itself controlled by the trustees. The property is considered as if held by the trustee, although for registration purposes it is the company that is the owner of the property and it is the company name that appears on the title deed of the real estate.

The ability to park money into real estate in Israel in a way that provides discretion and privacy usually associated with Swiss banks is clear.

It is revealing that the first holes that appeared in Swiss banking privacy coincided with Israel’s recent real estate pricing spike. To be sure the, the signifiant increase in real estate prices in Israel can partly be attributed to the flight of capital from formerly discreet Swiss banks. As a result of the assault of US authorities on Swiss banking secrecy laws, (mainly) Jewish clients of Swiss banks found a perfect tax haven in Israel utilizing vehicles such as trusts. At bottom line, it became safer and less risky channeling funds into apartments in Tel Aviv, Jerusalem and Raanana then in keeping it in Swiss accounts.

This unique combination between available legal structures and ready overseas  capital provides just another reason why the Israel property market will not cool-off anytime soon.

The material in this article is for information purposes only. It should not be construed as providing legal advice and should not be relied upon as legal advice.

Home prices and the summer heat, constantly rising

For a couple of months, just before spring, I thought the impossible had occurred. Despite, all of my predications of continued property price rises, I was starting to feel that we had hit a plateau. Clearly, I was not properly reading the tea leaves.

Property prices are still rising. According to The Ministry of Housing and Construction figures recently released, new home prices rose by at least 6% in real terms in the first quarter of 2013, compared to the same period in 2012. In addition, second-hand homes prices rose by 5% in real terms in the first quarter of 2013 compared to the same period in 2012.

As I have often stated, it is interference in the property market, though well meaning, that is causing an already skewed supply and demand dynamic, to become even more severe. Property experts believe that the cancellation of the betterment tax exemption, and a new purchase tax on luxury purchases, will freeze numerous transactions in the near term. With less stock on the market, rental and sales prices naturally and necessarily climb.

The Ministry of Housing and Construction is aware of this recent pricing surge and is studying the new data. Apparently, they are proposing extraordinary measures to stabilize prices. I love these guys, they are from my party. We see eye to eye ideologically. However, may the powers that be, protect us from any extraordinary measures.

STILL NO GIVE IN ISRAEL REAL ESTATE

Despite the high hopes of all supporters of the Rothschild Social protests in 2011, and the real action taken by the Bank of Israel and Finance Ministry to cool down property prices, after a brief holding period prices are again on the rise, even if on a more gentle curve then the years preceding the protests.   
While this is particularly the case in the central area of Israel, it is a basic truth for the whole country. Whereas there is still a difference in pricing between the central and peripheral areas, factors such as rail infrastructures, government and educational decentralization, are increasingly leveling the real estate playing field. As such if there is a  pricing surge in Tel Aviv, the chances are that there will also be a (more gentle) surge in places such as Ofakim and Hadera. 

The question that naturally emerges is till when will we experience such upward movement in property pricing in Israel? My advice is don’t bet against prices going down in the short to middle term. Even wars seem to have resulted in property price increases. Following an initial “flat” period after our wars, market confidence soon seeps back into the market. We experienced this after the Second Lebanon War in 2006. After many years as a sleepy town, it took scud missiles landing in Haifa to lift it out of its real estate slumber. Two years following the war, property prices in the downtown area were up to 40% higher then before the war. More or less the same pattern repeated itself in Beersheba after Operation Cast Lead in 2008-2009. 

The real factor has been and will seemingly continue to be the constant supply and demand tension. Israel has more young families entering the real estate market, per capita, then any other developed nation (estimated at 40,000 across all sectors) . Israel also experiences an inflow of thousands of immigrants every year. In addition, over the last 2 or 3 decades there has been strong buying activity by non-resident Jews. Such buying patterns will only increase as Jewish life becomes more uncomfortable and threatened in large areas of Europe.

In terms of supply there is an annual lag or shortage of 10,000 apartments. Naturally this accumulates, and the gap is somewhere between 60,000 to 100,000 apartments at any one time. The true irony of Rothschild is that it only contributed to this shortage of housing. In the heady days and months following the social protests buyers were expectant of property prices dramatically falling. As such, buyers across the board held back from making property purchases. This led directly to fewer new building starts in 2012. According to data released by the Central Bureau of Statistics there was a 13% decline in newer building starts in 2012. The already lagging supply situation just got tighter. 

A dead end? Yes and No. This writers humble opinion is that the real estate pricing relief promised by the new political game makers will be mixed. Plans call for the more speedy and efficient release of sate lands by the Israel Land Administration to the private sector for development. This will certainly impact on prices in the peripheral areas. As for the residents of central areas, the coastal areas and Jerusalem, where there is not much more land to release, there should be a measure of relief that property prices are not quite that of Singapore, Hong Kong or Japan.  

Living the Highlife in the Promised Land

Ok, so I was reading the news this morning and came across something I had to share. I almost spilt my coffee after reading this. Some businessman is paying ₪160000 a month in rent for a 950 sq. built house with a pool and 6 bedrooms in Herzliya Pituach. Can you imagine paying such a price to rent a house, what is this little country coming to. In this article that I will share with you shortly, some homeowner turned down a 2 week short term rental offer of ₪400000 because it was inconvenient. Wow we really don’t know how the other half lives, but if any of you out there are interested in such rentals please contact us directly, clearly they are available and we can help you. Here is the article taken from Haaretz Digital 24-03-2013

Near record: Luxury home rented out for NIS 160,000 a month
The Herzliya Pituah house has 950 square meters of floor space and features a swimming pool and six bedrooms. By Raz Smolsky | Mar.24, 2013 | 5:27 AM

160000rent

A businessman who lives abroad most of the year has rented a 950-square-meter ‏(10,225 square feet‏) mansion in the north-of-Tel-Aviv coastal town of Herzliya Pituah for around NIS 160,000 a month. The one-year lease is thought to be among the highest amounts paid for a residential rental in Israel.

The house, on a two-dunam ‏(half-acre‏) lot on Hanassi Street, is owned by an American businessman who lived in the property until recently. It features a pool and a whirlpool spa in the yard, parking for four cars and a finished basement with a bar and both poker and pool tables. The main level contains a living room, kitchen, dining area and a television room that at the tenant’s request was converted into a bedroom and bathroom. There are five additional bedrooms upstairs. The yard is landscaped with fruit trees and extensive lawns.

“Luxury leases don’t happen every day,” said Uri Tal, the owner of a Herzliya Pituah real estate agency that was a partner to the deal. “Usually such renters are Russian businessmen who, because they haven’t decided whether to live in Herzliya Pituah or in Tel Aviv, live here for a time before buying a home.”

Tal said that employees of foreign companies such as banks, technology and energy companies on short-term assignment in Israel generally rent homes that cost between $5,000 and $10,000 a month.

Foreign ambassadors generally aim for the $15,000-$25,000 a month range of temporary luxury accommodations, Tal said. He added that he recently brokered a lease for $25,000 a month, for a European embassy.

Or Zohar of Israel Habitat, another Herzliya Pituah real estate office, says the agency brokered a 25-day rental in August to a French businessman for $43,000, about NIS 160,000. Zohar notes that very short-term stays are always more expensive than longer contracts.

According to Tal, the main determinant for rental prices in Herzliya Pituah is the quality of the property itself. “While in homes for purchase location is a major factor, for home rentals, since it’s for a limited period, the standard of the finishings and construction are much more important,” he said. In Herzliya Pituah, he said, the distance from the beach does not greatly affect rents.

Some local homeowners whose homes are very valuable rent them out rather than selling them, Tal notes. He says this group includes people who have moved out of the town “due to age or a change in family status, such as divorce or children leaving home, who have decided the best way to protect their money” is to lease their homes rather than selling them.

Short-term summer or vacation rentals, particularly during the fall and spring Jewish holidays, have become a source of income for some Herzliya Pituah homeowners, Tal says. “Since it’s for a short period the prices are higher” per month than a more extended lease, he explains, adding, “A two or three-month rental can generate as much as would be paid for the property for a year.”

Tal says he knows of a local homeowner who recently turned down an offer to rent out his home for two weeks, for around NIS 400,000. “The house wasn’t on the market, but [the owner] was approached anyway because it was a special property,” Tal says, adding that some homeowners jump at such offers.

Bedside Battleground

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Every year just before Pesach, I bravely put on my helmet and tackle the accumulation of junk from the past year, after getting through every room, I finally get to my room, and bravely go where I don’t go for the year, “my bedside table” all I can say is oi va voi. For those of us who are constantly struggling with “stuff” next to our beds, this is a really insightful article from the New York Times. We forget how important it is to have order and peace next to our beds, its one of the most important spaces in our lives. Whats really interesting is that article suggests that we all share similar habits, at the most intimate epicenter of our lives. http://www.nytimes.com/2013/03/14/garden/the-battleground-on-the-bedside-table.html?smid=pl-share

How well would you have done….

if you purchased a new 4 room apartment in Raanana, in say 2004?

In analyzing a return on a purchase of an apartment in Raanana I will focus on 4 room apartments in a single building, at No. 5 Shvil Ha Zahav, in the East of Raanana.

Based on actual sales prices, buyers purchasing such apartments off-plan in 2004 paid NIS 1,110,000. In 2007 sales were recorded at NIS 1,700,00. Three years later, in 2010, buyers paid NIS 1,880,000 for these apartments. One year later, prices climbed to NIS 2,100,000. The last sale recorded was in January 2013, at NIS 2,200,000.

This represents an almost 100% return on investment in a period of 9 years.

That was the situation till now.

As this building gets older the return will flatten somewhat. Not by much, however. This is a prime location and there is an absolute impossibility of newer product.

The lesson, as always in real estate, is location, location, location.

 

4 room apartments, an ideal investment class

When less is more.   We are often asked by investors whether 4 or 5 room apartments make more investment sense.

Assuming all things are equal, I have little doubt that 4 room apartments make much more efficient investment vehicles. Rental returns on say a new 4 or 5 room apartments in good areas are more or less the same, at around 3.4% per year.

However, the magic of 4 room apartments lies in the great demand for these apartments. Whereas 5 room apartments are generally demanded by families with three or more children, the market for 4 room apartments is less defined. Tenants for these apartments range from young families to smaller families to retired couples who generally seek a spare room or office.

As a result, demand will be stronger and less seasonal. In addition, the upkeep and maintenance of 4 room apartments will be less severe.

Current prices for new 4 room apartments in Raanana are approximately NIS 2,200,000. Rental on these apartments are around NIS 6,200 per month. Current prices for new 5 room apartments in Raanana are approximately NIS 2,550,000. Rental on these apartments are around NIS 7,300 per month.