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Last Updated: Jan 05, 2014




Israelís housing market remains robust, amidst strong economic growth. Property demand continues to rise and the residential construction sector is picking up.

The average price of owner-occupied dwellings in the country rose by 7.42% to ILS1,244,800 (US$355,522) during the year to Q3 2013, after annual increases of 7.58% in Q2 2013, 9.77% in Q1 2013, 5.82% in Q4 2012 and 4.99% in Q3 2012, according to the Central Bureau of Statistics (CBS). When adjusted for inflation, house prices rose by 5.62% y-o-y to Q3 2013. Israeli house prices increased 2.39% (1.34% inflation-adjusted) during the latest quarter.

Haifa†saw the highest house price increase during the year to Q3 2013, with prices surging by 25.2%. It was followed by the†Gush Dan (15.2%), Tel Aviv†(12.7%), Qrayot Haifa (10.9%), the Southern district (10.7%), and the Northern district (8.4%).

The Center and Jerusalem Periphery Towns and Sharon also saw moderate year-on-year house price increases of 4.8% and 4.4%, respectively.

In contrast, Jerusalem saw an annual house price fall of 3.9% during the year to Q3 2013.

Tel Aviv†has the countryís most expensive housing, with an average price of owner-occupied dwellings of ILS2,250,900 (US$642,870) in Q3 2013. It was followed by†Sharon†at ILS1,535,900 (US$438,662) and Jerusalem†at ILS1,497,200 (US$427,609).

Israel experienced dramatic house prices rises in 2009 and 2010, despite domestic political uncertainty, security threats, and the global financial meltdown. The housing market returned to robust growth in 2012.
  • The average price of owner-occupied dwellings rose modestly by 4.1% (-0.49% inflation-adjusted) in 2008
  • Property prices rose by 22.35% (18.15% inflation-adjusted) in 2009
  • Property prices rose by 17.04% (14.22% inflation-adjusted) in 2010
  • Property prices rose by just 0.04% (-2.39% inflation-adjusted) in 2011
  • The average price of owner-occupied dwellings rose by 5.82% (4.12% inflation-adjusted) in 2012

Demand continues to rise. In October 2013, the total number of dwellings sold rose by 1.73% year-on-year to 1,819 units. In 2012, the total number of new dwellings sold reached 22,313 units, up by 13.2% from a year earlier. Likewise, the total quantity demanded for new dwellings in Israel also increased by 5.8% y-o-y to 42,257 units in 2012.

However, the national figures conceal local property demand variations. From January to October 2013, the Judea and Samaria Area recorded the highest increase in the total quantity of dwellings demanded, rising by almost 50% from the same period last year. It was followed by Haifa (24.8%) and Jerusalem (12.2%). On the other hand, demand fell in Tel-Aviv (-9.3%), Southern region (-7.9%), Northern region (-5.5%) and in the Central (-0.2%) over the same period.

Israel house pricesThe construction sector is also picking up. In Q3 2013, the total number of dwellings started surged by 17.11% year-on-year to 10,176 units, based on figures released by the CBS. Likewise, the number of dwellings completed also rose by 11.88% to 9,925 units over the same period. In October 2013, the number of dwellings for sale in the country also increased by 1.98% from the same period last year, 21,838 units.

In October 2013, there were about 21,838 new dwellings for sale in the country, up by 2% from the same period last year, according to the CBS.

Israelís economic growth is expected at 3.8% in 2013, after registering real GDP growth rates of 3.4% in 2012, 4.6% in 2011, and 5.7% in 2010, according to the IMF. In September 2013, the Bank of Israel, the countryís central bank, cut the benchmark interest rate by 25 basis points to 1%, its ninth rate cut in two years, in an effort to buoy the economy.

Analysis of Israel Residential Property Market »


RENTAL YIELDS
Last Updated: Aug 19, 2013



Property prices in Israel are more expensive than anywhere else in the Middle East. Apartments in upscale residential areas of Tel Aviv cost on average USD 8,500 per square metre (sq m). In the nearby suburb of Herzliyah Pituach, which is touted as the Israeli version of Newport Beach, property prices are even more expensive, ranging from USD 9,500 to USD 12,000 per sq. m. Many ambassadors and foreign diplomats reside here. Its villas and tree lined streets are within walking distance to beach. It is also a sought-after venue for high-tech companies.

These are the sort of prices that can be seen in Swiss cities of Geneva and Zurich, or in Canadaís Toronto and Vancouver.

The Bank of Israel issued a directive in October 2012 putting a ceiling on how much a home buyer can borrow against the price of house he is buying. Yet it denies that there is a housing bubble in Israel.

In Tel Aviv, the average price of owner occupied-dwellings increased by 3.7% in the year ending to Q3 2012, according to Israelís Central Bureau Statistics. The same observation is made by the latest Global Property Guide survey, which found that the average prices per sq. m. of apartments rose by 3.7% to USD 8,500 in November this year, from around USD 8,200 in August last year.

A 120 sq. m apartment now costs around USD 8,300 per sq. m., whereas last year, it only cost around USD 7,800 per sq. m. In Herzliyah Pituach, a 120 sq. m. apartment now costs on average, USD 10,500 per sq. m.

Renting an apartment in Tel Aviv would cost you anywhere from USD 23 per sq. m. per month to around USD 27 per sq. m. per month, which means that you can rent a 60 sq. m. apartment for about USD 1,600 per month, and a 120 sq. m. apartment for around USD 2,700 per month - not inexpensive! (We donít have rental figures for apartments in Herzliyah Pituach as it is an exclusive enclave whose rents are highly seasonal.)

Gross rental yields for apartments in Tel Aviv, i.e., the gross return on investment in an apartment if fully rented out, are very poor. They range from 3.32% to 3.88% only. This tends to support the popular view that property is somewhat overpriced.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Jun 12, 2013



Rental Income: Rental income is taxed in Israel. Taxpayers can opt for a flat 10% tax on gross rent (without any deductions), or progressive income tax rates on net income.

Capital Gains: Most properties sold in Israel are exempt from capital gains tax. If the gains are taxable, the net gain is taxed at the standard income tax rates.

Inheritance: Israel has no inheritance tax.

Residents: Resident individuals are taxed on their worldwide income and capital gains at progressive rates, from 10% to 48% in 2012.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Jun 12, 2013



Roundtrip transaction costs, i.e., the costs of buying and selling a property, are around 7.232% to 9.032% of the total property price. The buyer shoulders most costs. Buyers must check what is included in the purchase price because property in Israel is sold with just the bare walls, unless otherwise agreed. Buyers must also check first if the land is zoned for building, not for agriculture.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Jan 01, 1970


Tenancy laws

Research in this field is on-going.

Read Buying Guide  »



ECONOMIC GROWTH
Last Updated: Jan 05, 2014


Israel: Modest economic growth; declining deficit

Israel luxury modern housesIsrael is a technologically-advanced market economy with GDP per capita of US$33,433 in 2012, according to the International Monetary Fund (IMF). The country has capitalized on its highly skilled and educated workforce, enormous financial aid from the US, and investment from wealthy Jews abroad. It has built a strong niche in high-tech and IT start-ups, with its position has recently been strengthened by oil and natural gas discoveries.

In May 2010, Israel became a member of the Organisation for Economic Co-operation and Development (OECD), the exclusive rich-manís club.

Israel, GDP growthIn the third quarter of 2013, the countryís annualized real GDP growth rate stood at 2.2%, from 4.6% in Q2 2013 and 2.6% in Q1 2013, according to the CBS. The total exports rose by an annualized 2.7% in the third quarter of 2013, following a drop of 9.8% in the previous quarter. Over the same period, imports also rose by 4.5%.

Israelís economic growth is expected at 3.8% in 2013, after registering real GDP growth rates of 3.4% in 2012, 4.6% in 2011, and 5.7% in 2010, according to the IMF.

In October 2013, the countryís unemployment rate dropped to 5.9% from 6% in September 2013 and 6.1% in August 2013, according to the CBS. There were about 218,000 unemployed in Israel in October 2013. Of the 3,704,000 employed Israelis aged 15 and over, 1,861,000 were men while 1,625,000 were women.

In September 2013, the country’s annual inflation rate remained steady at 1.3% from the previous month, according to the CBS. The central bank’s target rate of inflation ranges from 1% to 3%.

Israel unemploymentThe Bank of Israel cut the benchmark interest rate by 25 basis points to 1% in September 2013, its ninth rate cut in two years, in an effort to buoy the economy. Moreover, the central bank has also been buying dollars to cool the shekel and spur the export-driven economy. The central bank is expected to buy at least US$5.6 billion in 2013-14 and was ready to purchase more if needed.

Over the past 12 months, the country’s deficit was equivalent to about 3.3% of GDP, well under the deficit target of 4.65% set in the 2013 spending plan. In the first 10 months of 2013, the deficit stood at ILS18.6 billion (US$5.3 billion), down from the deficit of ILS23.2 billion (US$6.63 billion) seen during the same period last year.

In November 2013, Fitch Ratings upgraded the credit outlook for Israel to positive, mainly due to the country’s lower-than-expected annual deficit.







  • Moderate yields in Tel Aviv
  • Low to moderate transaction costs
  • Low effective rental income tax
  • Low recent GDP growth
  • Minor property ownership issues
  • Several conflict areas
RESIDENTIAL PROPERTY FACTS
Price (sq.m): $9,511 For a 120 sq. m. property, usually an apartment.
Rental Yield: 3.45% For a 120 sq. m. property, usually an apartment.
Rent/month: $3,280 For a 120 sq. m. property.
Income Tax: 7.50% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 9.57% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: n.a. Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Neutral Rating is based on a detailed study of each country’s law and practice.

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