For Israeli house hunters, NIS 300,000 goes further when you are farther from home

Housing prices in Israel have seen a meteoric rise in the last several years. That’s also true of many other countries — Australia, the United States, Canada, Germany, the Czech Republic and others — who have seen similar jumps since the start of the COVID pandemic.

But there are safe harbors from the stormy real estate seas, countries where prices have remained practically steady or where only modest gains have been experienced and decent places with attractive yields can be had for less than a small fortune.

For Israelis looking to climb onto the real estate escalator, buying abroad can be an enticing option that won’t necessarily break the bank, often offering cheaper prices, less volatility, and more attractive loan terms for investors. The strong shekel at the moment versus other currencies also allows an initial sum — like the NIS 300,000 ($86,000) our composite characters Dina and Ilan are working with  — to stretch further.

In the first article of this series, readers were introduced to the pair of fictional Tel Aviv renters who after years of scrimping and saving, managed to pull together a nest egg of NIS 300,000.

But options for the young family were limited, especially if they intended to remain in the Tel Aviv area or in other big cities, with the down payments usually only enough for older, smaller apartments, usually in less desirable neighborhoods. That was part one, which you can read here. This is part two, which will examine options abroad. Part three will look at other ways to get into the real estate game.

An element of the problem for the young family was timing. In the last year alone, prices have risen an eye-popping 19 percent. Industry experts say the jump is not due to a bubble that is liable to pop, but rather an ongoing shortage of housing, which has failed to meet demand from a growing population. Prices are expected to continue rising, even if the rate at which it does so slows down.

That’s not true everywhere. Other countries have seen housing price deflation since the first quarter of 2020, often due to the financial pressures of higher interest rates and an increased cost of living. These countries are usually keen to attract foreign investments in property, offering flexible financing options to potential owners, wherever they may come from. These include low down payments and subsidized fees at the start of investing, staggered payment schedules, and mortgages on generous terms regardless of nationality.

While Israeli banks won’t extend a mortgage for properties overseas, they may still offer loans. If Dina and Ilan’s parents own property, they can take a loan for Dina and Ilan, with their own home as security, or take a loan in their own names and make it available to the young couple.

Foreign investments can be tricky, though, and investors need to do their homework by speaking to experts, not just friends who say they have made a killing. Investing in property outside of Israel means putting money in a place you may never see or have even heard of, making it all the more important to choose the right agents, brokers, and consultants. There are substantial profits to be made, but achieving them requires working with the right people, extensive research, and sometimes a helping of luck.

And investors should also be ready to pony up for the taxman. According to Ralph Sanders, an accountant certified to work in both the UK and Israel, foreign rental income will be taxed, as will any capital gains on selling a property abroad, meaning the more you make, the more you will pay.

Ori Koskas, Israeli Investment Advisor, August 22 (Ori Koskas)

For people like Dina and Ilan, the idea is not to buy a vacation home but rather to put money where it can work best for them so they can eventually buy their forever home in Israel.

“It’s important to understand what your investment goals are, and what your circumstances are before you plunge into investing overseas,” said Ori Koskas, an Israeli investment advisor who does a lot of work in overseas housing markets.

My big fat Greek property

Greece and Cyprus have been key markets for Israelis for a long time. Flight times are short and there’s no need for a visa to visit. The governments favor foreign investment in real estate and work to make it as straightforward as possible.

In Cyprus, Israeli interest in real estate investment is even higher now than it was pre-COVID, according to UK-based consultancy IR Global.

A couple walk at the salt lake during sunset in the southeast coastal city of Larnaca on the island of Cyprus, on September 5, 2022. (AP/Petros Karadjias, File)

In Greece, homes cost a fraction of what they do in Israel. In 2020, the average price per square meter of living space in Israel was reportedly nearly 400 times that of Greece. Since then, the gap has only widened, according to OECD data.

In addition to lower prices, Greek real estate boasts higher yields, meaning income from rent relative to the price of the property is much higher than in Israel. It is no coincidence that property sales to foreigners had risen almost 75% in a year back in March and that some major market players were out of stock by the summer.

Apartments marketed at Israelis tend to be in holiday resorts. They offer consistent rental returns of 4% to 7% a year, compared to 2%-3% in Israel.

A view of Nissi Beach in the southeast resort of Ayia Napa, in the eastern Mediterranean island of Cyprus, Saturday, May 22, 2021. (AP/Petros Karadjias)

The Times of Israel’s research suggests that it is possible to buy a place in Greece or Cyprus with a starting sum of NIS 300,000 combined with a much smaller loan than would be needed in Israel.

On the southeast coast, a brand new two-bedroom, two-bathroom apartment was going recently for €155,000 or NIS 532,183 ($150,275). If you want to increase leverage and buy something more expensive, €475,000 (NIS 1,622,471, $458,145) will get you a three-bedroom villa with its own pool.

Things are even cheaper in Turkish-occupied Northern Cyprus, though getting there can be more complicated. A studio apartment in a beachfront resort complex complete with swimming pools and other facilities can cost as little as €60,455 (NIS 208,416, $61,599).

Prices on the Greek mainland and Crete have fallen roughly 40% over the last decade. They are now on the rise but still much cheaper than an apartment in Tel Aviv, or anywhere else in central Israel. Elxis, a Greek real estate firm, has two-bedroom properties in Northern Crete on the seafront for €270,000 (NIS 879,213), complete with swimming pool and easy access to both the sea and airports.

Golf or Gulf

Koskas urges investors to look beyond the obvious. He is investing in Portugal on his own behalf and for his clients. The country delivers on his golden rules for investment, he says.

“Buy in big cities like Lisbon and Porto; buy in a well-developed real estate market; make sure the market is transparent and well regulated, and look at what financing is available which will allow you to leverage the money you have through taking a mortgage,” said Koskas.

High percentage mortgages are available to foreigners, legal fees are low, with good rental returns.

Israeli property held in Portugal (Ori Koskas)

With NIS 300,000, you can borrow enough to buy an apartment in Portugal costing NIS 1.5 million ($430,000), and what you can get for that price is far beyond the starter apartments available at that price point in most parts of Israel.

In the Algarve, Portugal’s most popular tourist region, The Times of Israel found 19 properties priced from €150,000 to €200,000 (NIS 515,016 to NIS 686,687) including new construction, beach-front and town-center apartments, and two or three bedrooms, any of which could easily be financed with NIS 300,000 plus a small loan. There are even more options in the €350,000 to €400,000 (NIS 1,195,505 to NIS 1,366,292), including five-bedroom villas, exclusive golf-course properties, and more.

Another key location being marketed heavily to Israelis is Dubai. Within the first six months after the signing of the Abraham Accords in 2020, over 100,000 Israelis visited the United Arab Emirates, and realtors and investment advisors were among them.

Dubai has been an attractive real estate investment destination for some time, with low prices and high rental yields of between 5% and 9%. Property taxes are minimal and residential prices have fallen substantially over the last decade, down nearly 40% when adjusted for inflation since 2014 according to S&P Global.

The first-ever UAE property sold and registered to an Israeli investor was a one-bedroom home in a project by Azizi Developments in Dubai Healthcare City in November 2021. More recently, a two-bed apartment in Dubai’s Town Square district was sold to an Israeli investor for NIS 918,250 ($250,000). There are now around 1,000 Israelis living in Dubai, and those working in the property market are trying hard to hire Hebrew speakers to increase the ability to respond to Israeli interest in buying there.

Dubai investment apartment, August 2022 (courtesy Dubai Investment Real Estate)

In Mirdif Hills, a relatively new development west of Dubai’s airport, a just-completed one-bedroom apartment was being offered for $381,160 (NIS 1,311,907). A buyer would need to put 24% down — $91,479, (NIS 299,092) — and the rest would need to be paid off over the next five years, during which rent could be earned to put towards that. It would be a challenging purchase – with NIS 70,00 to NIS 90,000 a year ($19,766 to $25,414) being set aside to repay the loan – but if our fictional couple is moving up the career ladder and managing their Israel housing costs, it is achievable.

Another option in Dubai is investing in a hotel room, which offers even higher rental yields, up to 12%, though management charges may eat into that. The rooms are booked via a central clearinghouse, though in some cases the investor can also visit their pad for a few weeks a year. Hotels are going up fast in Dubai. Over 35,000 new rooms are currently planned, half of which are due to be ready by the end of this year.

Similar options are available in Thailand, which is seeking to dig its way out of pandemic-induced damage to its vital tourism industry, including by incentivizing foreign investment in real estate. Prices there have fallen, but are predicted to rise this year as tourists return, according to some market surveys. Israeli/Thai joint development projects are not uncommon and are often marketed to Israeli investors. In Phuket, for instance, new two-bedroom villas on the hills overlooking the Indian Ocean start at $27,531 (NIS 93,832, $26,495).

Koskas, however, advised against investments like these, which are available across many different locations, attractive as they may seem at first glance. Among the various issues is the fact that investors are reliant on hotel management to attract tourists, meaning the profitability of a property is out of the buyer’s hands.

“You as an investor have zero control,” he warned.

NIS 300,000 can still stretch a very long way in Thailand and Dina and Ilan could use it to buy several properties at once, hedging their risks and maximizing the money they make in rent and (eventually) sales.

Tourists lounge under umbrellas along Patong Beach in Phuket, Thailand, Friday, March 11, 2022 (AP Photo/Salinee Prab)

Go West, young homebuyers

Jewish-American investors are among the biggest overseas buyers of property in Israel, but it’s a two-way street. In 2019, Israelis invested $2.4 billion in real estate in the United States, according to an Israel Hayom report citing numbers from an investment conference.

Home prices there have rocketed almost as high as in Israel, and in some places even higher, but there are signals of a coming housing recession, meaning advisers think the market may drop, making it a good time to buy.

The US is a complex market, with shifting investment hotspots, depending on what buyers are looking for. There are a wide array of advisers who specialize in knowing the ins and outs of buying real estate there from abroad — and $250,000 (NIS 300,000 with a reasonable loan added to it) can buy a decent place in most parts of the US according to some in the industry. There are no restrictions on foreigners buying property in the US, and it is also possible to get a mortgage there, although as non-residents it would be easier for Dina and Ilan to take a loan in Israel and become cash buyers.

Israeli financial planner Rifka Lebovitz, who runs the popular Facebook group “Living Financially Smarter in Israel” calls US real estate “one of today’s most secure and lucrative investments.”

“You can enter this market with as little as $50,000 (NIS 170,411) and earn significant monthly returns. But you definitely can’t do it without expert guidance,” she said.

Rifka Lebowitz, Israeli Financial Planner

This is partly because there are many different options around how to structure an investment, offering different risk and return profiles, and more or less liquidity, she said.

If you buy a property to rent out, depending on the particular local market, it is not uncommon to be able to make $1,000 a month (NIS 3,500) on a house that costs $100,000 (NIS 350,000) to buy. NIS 300,000 is at the lower end for a property in the US without a mortgage, but not out of the question.

But as in any developed market, cheaper housing carries its own risks. What you can afford may be in the less nice end of town, it may need more of an outlay on maintenance, attract unreliable tenants and, as elsewhere, you will be reliant on having someone on the ground to look after your property.

But there are other options, including what is known as real estate investment groups, or REIGs, via which investor money is pooled together by a firm and put into a portfolio of properties, often an array of entire apartment buildings.

Investors own shares of properties, and receive dividends from rental income. These can typically be from 6% to 10% per year. When a property is sold, they get a piece of the action, or can put the money back into another property. The structure dilutes risk, but investors have little control over the investment agenda, management fees eat into profits and investors can lose out on potential windfalls if the group sells too quickly.

The UK property market can also be an option.

There are no constraints on foreign ownership of property, no restrictions on the long-term management of rental levels, and the first 12,500 pounds of rental income each year (NIS 52,325) is tax-free.

Naftali Levenson of Nadlan Anglia specializes in investing money in UK properties on behalf of Israelis, buying single-family homes in the northeast of England – around Sunderland and Newcastle – which are held in the name of the individual investor, and are then rented out.

“Most of those who come to me have NIS 250,000 [$72,000] to NIS 300,000 [$86,000] and feel that there are better options overseas than in the Israeli real estate market,” he said.

Levenson claimed returns of 10% a year on that size of investment, after his management fees, for his hundreds of investors.

Housing purchased for investment in North of England (courtesy Naftali Levenson)

Most properties are held long-term for rental income, which attracts a tax rate of 15% when returned to Israel. But individual investors can also choose to sell properties whenever it suits them.

Although he started out in London, Levenson says that he no longer recommends buying there, as property has risen to a level that he believes is now too high to deliver a meaningful profit.

The risk in investing abroad anywhere is that property prices may rise at a slower rate than they would in Israel, or even begin to fall. And of course, there are many other risks associated with buying a property you may never see. But for young Israelis willing to wait a few years — or often more to see really large returns — before buying a home in Israel, looking abroad can offer a way to grow a modest down payment into a much more sizable one.

Stay tuned for part three of the series, which will look at other ways to invest in the Israeli housing market, including options that allow investors to hitch a ride on the property hot air balloon without necessarily purchasing a home outright.