Real estate yield in Israel 2022 and what can be learned from it

Towards the end of 2022, it is worth taking a look at the returns achieved by real estate (residential) investors in Israel this year. If you have bought a property or are considering a purchase, we will dive into the numbers for you. But we will also examine the details behind the numbers, with facts and cautionary rules for beginning (and less beginning) investors.


Where and how many investment apartments were purchased in a representative month

The chief economist at the Ministry of Finance reported that in September 2022, there was a cooling in the demand for real estate for investment. In most regions of the country, the amount of transactions for the purchase of residential real estate for investment purposes was significantly lower compared to the corresponding month of the previous year. According to reports from the Ministry of Finance, below are some of the most popular cities in the eyes of investors in 2022, together with the number of apartments purchased (in parentheses we indicate the number of apartments in the same month of the previous year):

Haifa – 110 apartments (previous year 80).

Kiryat Gat – 90 (previous year 10).

Jerusalem – 100 (previous year 100).

Tel Aviv – 90 (previous year 180).

Bat Yam – 80 (previous year 160)

Beer Sheva – 70 (previous year 60).

Netanya – 70 (previous year 100).

Ramat Gan – 75 (previous year 40).

Petah Tikva – 30 (previous year 60).

Ashkelon – 20 (previous year 80).

Cities where purchase transactions by investors were also carried out in a noteworthy amount (about 20 per month) are Holon, Afula, Harish, Tiberias, Kiryat Bialik, Nahariya and Acre.

Behind the deals, how much real estate investments have earned this year

Behind the numbers, it’s worth taking a look at the yield data that residential apartments produced this year. For convenience, we chose an average apartment and checked the average returns. It turns out that Tel Aviv, which was at the top of the demand table this year in the eyes of the Israeli real estate investor and despite the high rent in the city, the yield stood at a rather low figure of 2.1 percent. This is also the figure that yielded an apartment for investment in Bat Yam. Ramat Gan with a slightly higher yield, totaling 2.3 percent and a similar yield was recorded for a rented apartment in Jerusalem. A residential apartment in Haifa yielded a slightly better return, 2.6 percent. A higher yield was obtained in the southern region. Apartments in Be’er Sheva and apartments in Ashkelon yielded a yield close to 3.5 percent. But does that mean that those who invested in Ashkelon made a better deal than the investors who turned to Tel Aviv? The answer is not necessarily. Now we will explain why.

Why many investors still choose Tel Aviv

There is no doubt that the increase in real estate taxation imposed on real estate investors caused purchases to cool down. It is still too early to determine how strong the effect of the increase in interest rates will be, but apparently this is also expected to cause a decrease in the amount of apartments bought for investment purposes. But why do relatively many investors still choose Tel Aviv and Jerusalem as an investment destination? Note that these are long-term investors, and according to the data, they estimate that nothing will succeed in lowering real estate prices in these cities. The expectation of an increase in property value is a key point. When you expect a sharp increase in the value of the assets in the coming years, you are willing to settle for a relatively low yield in the present.

To invest or not to invest, the variety of considerations

In light of the dramatic increase in interest rates of the last few months and in light of the inflation that has reared its head, we believe that it is not currently responsible to recommend or not to recommend making a new real estate investment. However, it is worth pointing out a few points for thought that should be taken into account:

  1. The average interest rate for mortgages currently stands at about 4.5 percent per year. This means that the absolute majority of investors who need a large mortgage at the present time, will have difficulty relying on the rent to pay the full monthly repayment.
  2. The risk-free interest rate in the economy is currently approaching, and even exceeding, the yields yielded by residential apartments in Israel.
  3. On the other hand, when purchasing a property, as opposed to investing in deposits, after the end of the mortgage you get a property free of encumbrances and in full ownership.
  4. An expectation of an increase in real estate prices should be taken into account. When yields are relatively low, volatility in asset value is a very important parameter.
  5. We emphasize that there are other considerations for investing in real estate, and this is always in light of the alternatives. For example, unlike stock market investments, this is a real, actual asset. The capital market has seen a lot of volatility and sharp declines in the past year. On the other hand, real estate for investment is much less volatile .
  6. Real estate is still a solid investment, which can suit investors who want to stay away from risk.

In conclusion, real estate investments are still a legitimate avenue for investors, even in the current market conditions. At the same time, it is important to be aware of the statistics, carefully check the funding sources and take into account that in the coming week, low interest rates on mortgages are not expected, as we have become accustomed to seeing in recent years.



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