We are in the middle of a pandemic, and it’s been almost 2 years since foreign nationals have been freely able to visit Israel, making it very difficult for them to personally view properties prior to making a purchase.
Despite the difficulties, foreigners purchasing property in Israel has reached record levels.
Much of this growth can be attributed to:
- More people choosing to make Aliyah
- Strong growth in real estate as an investment
- Willingness on the part of buyers to purchase property sight unseen
According to Immigration Minister Pnina Tamano-Shata, by the end of 2021, the number of new immigrants arriving during the year will reach 27,000, easily surpassing the seemingly optimistic goal of 25,000.
While this number is still below the record breaking 35,000 olim that arrived in 2019, it signifies a 22% increase over 2020 and makes it clear that notwithstanding the heavy restrictions imposed by the pandemic, Aliyah is alive, well and growing.
An important catalyst in the Aliyah numbers is the precarious position of Jewish communities around the world. Antisemitism in Western countries, economic uncertainty in South America and increasingly uncertain political conditions in Eastern Europe are all contributing to the feeling by diaspora Jews that they must seriously consider Israel as an alternative.
If they are not moving immediately, then at least it makes sense to buy a property – and prepare for any scenario.
During August of 2020, in an attempt to invigorate the real estate market – a bellwether of the economy, the Israeli government took the decision to lower the purchase tax on investment properties, defined as any second property. From a maximum rate of 10% kicking in on the purchase value above NIS 5.34 million, this threshold was raised to NIS 17.794 million, while the tax on lower values was reduced as well.
The ensuing period saw a rush of investment purchasing, culminating in a record rate during October of 2021, with more than 33% of all housing units being purchased as investment properties – an increase of 236% over the previous year. While these numbers reflect recent activity, in fact the numbers have been rising for over a decade. In 2008, only 2% of Israeli households owned two or more residential properties. Today, that figure is more than 10%, a five-fold jump in in just 13 years.
The increase in demand from investors has been a significant factor in the jump of more than 10% in real estate prices over the past year. With an eye on leveling off the price hikes, the government has decided to revert to the previous higher purchase tax rate as of the end of November, 2021. The prevailing viewpoint is that while the tax hike could well slow down the rate of increase in property values, considering the most important factor – huge demand facing limited supply – it is unlikely that we will see any actual reduction in real estate prices.
Buying Sight Unseen
The combination of Covid restrictions and the latest innovations in virtual technology may have given rise to the ‘perfect storm’, leading to what was considered unthinkable just a few years ago; making perhaps the most significant and personal investment that one would make, without actually laying eyes on the property itself.
In pre-pandemic days, it was considered essential to travel and meet before concluding a significant transaction. Covid has changed the thinking with regard to the necessity of travel, be it for business or otherwise.
When it comes to purchasing a home today, having a virtual property viewing with a real estate broker you have never met has become commonplace. Working from home and “visiting” friends and family via Zoom has made us all feel comfortable with broadening the use of such technology to almost every aspect of our lives. Finalizing plans with lawyers, mortgage brokers, and other real estate professionals over the computer is cost effective in terms of time and money.
In addition to buying property that is already built, a large portion of housing sales in Israel are done “on paper”, meaning that the property is being sold before it is built. In this case, whether you live next door to the property or 6,000 miles away, you are buying it sight unseen.
There are many benefits to buying a property on paper; the ability to customize the apartment to suit your needs; a longer financing window – as you can pay as little as 10% down, with the final payment only required as long 3 years down the road; when the time comes, you will be moving in to a property that is newly built and generally has a 7 year warranty on deficiencies that become apparent after you take possession – something you will never find on a second hand property.
Outlook for 2022
The most important factor driving foreigners to purchase property in Israel is their desire to have a place to call their own. Whether they are buying due to Aliyah plans, for investment purposes or as a vacation home, at the end of the day Israel is a place that Jews around the world can call home and are therefore interested in owning property here.
With strong Aliyah figures, continued investment and the ease of purchasing sight unseen, even in the face of ongoing restrictions due to the pandemic, 2022 is expected to see continued strength in purchasing by foreign nationals.