Still here, more choosy

Foreign investment in Israeli real estate is changing.

One of the more intriguing issues in recent years, as restrictions on capital flows between countries have been lifted, is the presence of foreign buyers in the Israeli real estate market. The strengthening of the shekel, impending recession, and the global credit crunch have undoubtedly left their mark on by foreign investors in real estate in Israel, but there are many answers to the question as to how much of an effect these factors have had. A special survey by "Globes" reveals new facts about the foreign buyers market, as it approaches one of its traditional peaks in the sweltering month of August.
Gean Henri Gugenheim, Jerusalem region and foreign residents manager at Bank Adanim - Mortgages and Loans Ltd. says that the era when foreigners bought real estate in Israel as if gold was being handed out free is over. "They're no longer buying anything that moves," he says. They may have been taken advantage of in the past but today they know that the prices are high and that you don't buy everything, though the ideological aspect is still there.

"The currency of foreign residents such as the French is still strong, and they can buy excellent properties. But they head for the outlying regions, and to Ramat Gan, Givatayim, Rehovot, and the Jerusalem suburbs. In Rehovot, for example, they've been told that the price is far lower, and the return is the same, that the city is expanding, and that there is the Weizmann Institute, and the agriculture faculty, and that it's 20 minutes from the beach. It's a pure investment," adds Gugenheim.

Some foreigners buy small buildings, or purchase land and then build a property which they then share with friends or family members. However, the rise in air fares has meant that buildings like these remain abandoned save for the summer season or during the holidays. According to Gugenheim, one fact that represents a marked change from the past is that foreigners are now spending more time checking out properties and alternatives for finance.

Waiting for prices to fall

The calmer atmosphere in France and the lowering of taxes and interest rates which Gugenheim describes as the "Sarkozy effect" has resulted in French buyers opting for small apartments as an investment instead of buying large properties to live in themselves. "In the past, 70% of purchases were for residential purposes and 30% for a quick profit or as rental properties, but today the distribution between the two is almost 50%-50%." In general, the banker does not sense a drop in demand, but rather "a more focused search, and an assurance that the property acquired can be rented out," says Gugenheim.

Dr. Rina Degani, co-CEO of marketing research company Geocartography Knowledge, says that some sites are still seeing sales, and others where they have come to near standstill. She says that in 2007, there were almost 5,000 deals on the market with foreign residents out of a total of 92,000 deals on the new and second hand property market together. "This amounts to 5.4% of the total number of deals, but the share in the new apartment market is much larger," says Degani. "In 2008 there will be fewer deals, and the foreigners will wait until the dollar is a bit more stable, or the market stabilizes, or prices fall. They haven't abandoned the country, but a 35% increase in apartment prices in real terms is not something they'll be overjoyed about, and they will wait for prices to come down."

In 2005, foreign residents invested $1.2 billion in real estate. This figure rose to $1.44 billion in 2006 and $1.55 billion in 2007. Foreign residents are perceived as buyers of luxury properties, but the figures presented by Degani reveal that this is inaccurate, since in 2007 the average apartment sold for $304,000, and only 55% of the apartments sold to foreign residents had a price higher than $300,000. "It is a myth that they only buy in high-rises in Tel Aviv. In 2006, foreign residents paid, on average, $370,000 for apartments in Tel Aviv and Jerusalem, but in Ashdod and Netanya the average was even lower," says Degani.

Geographic region is also a key factor, with one third of English-speaking foreign residents showing a clear preference for Jerusalem. A further 20% buy in Netanya, 16% in the Tel Aviv region, and the rest in other parts of Israel. According to Geocartography data, the leading city among French speakers is Jerusalem.

Fall in luxury apartment prices

Mark Zeevi, CEO of real estate management software solutions company B.M.B.Y. Software Solutions Ltd., operator of the online real estate site Lagur, which caters for foreign residents, says, "From January to the beginning of June, the market came to a virtual standstill, but over the last month and a half we have almost returned to the situation we had at the end of 2007." Zeevi says, not surprisingly, that there has been a steep, 80% drop in interest in apartments in Israel from Americans, while interest from French buyers has fallen by 45%, 60% among UK buyers and 50% among buyers from everywhere else (mainly Italians, Spanish speakers, and Belgians).

"The low dollar made deals not worthwhile for foreigners, most of whose money is in dollars, to which one must add the global crisis and the expectation that prices in Israel will plummet as they have been doing in the US and in Europe. After six months, they saw that prices weren't falling and that the dollar had rallied slightly, so demand has picked up again," says Zeevi.

Data on the Lagur site show that the leading country in inquiries about buying property in Israel is France (45%), followed by Russia (30%), the US (15%), the UK, Italy, and Belgium. "I think that, within three or four months, the Russians will account for more than 50% of inquiries. We estimate that 5,000 apartments will be sold to Russians over the next two years," adds Zeevi. In other words, half of the total sales to foreigners at the current rate.

One person who does not share the feeling that it's "business as usual," is Adv. David Levi, manager of real estate sales site Michrazonline. "In recent months we've seen a fall in prices of luxury apartments as a result of the fall in the shekel-dollar exchange rate and shekel-euro exchange rate. Since foreign residents are an important player on the Israeli real estate market, especially in the luxury segment, there has been a clear slowdown in sales. This is being seen principally in fewer purchases by foreign residents and an increase in the range of luxury properties on offer," says Levi.



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