Everything you need to know about permanent rentals

The background behind permanent rentals

1. If we go back to the starting point, we will note the rental crisis. The level of rent is on a constant upward trend (a 3.6% jump in the rental index for the group of tenants who renew their contract). Furthermore, contractors are having difficulty leading long-term rental projects, due to the high interest rates. All of this together has led planning institutions to promote the establishment of mega projects that deal with permanent rentals.

Permanent rentals – threshold conditions

So how is this suddenly possible? The CEO of Administration and Planning found a need and at the same time defined threshold conditions. In general, these are lands designated for “special housing”, designated for high construction intensities (minimum 100 housing units per project), the apartments are going to be small (maximum 80 square meters) and will not be built from blocks of flats (but with a protected floor space).

What else will characterize those properties that are designated for permanent rental? Those future buildings will contain shared spaces. Such as a gym, a residents’ club, a laundry room, shared work spaces, and even the entire construction is going to implement a concept of mixed uses that helps save on running costs and at the same time support environmental quality.

Mixed uses – an opportunity

We mentioned mixed uses, and here we will stop to clarify. Mixed uses also have an interesting meaning in terms of real estate investments, since this is a yielding asset. The fact that commercial space plus public space can be leased creates a profitable opportunity. Also, the fact that mixed uses are part of the equation requires a focus on locations that are close to transportation and employment hubs, alongside cultural centers and universities, i.e., locations that create anchors in terms of economic viability.

Shall we explain? When it comes to an important area such as real estate transactions and investments, location is a critical part of the success of a deal. People are looking to live next to centers that are easy to reach via public transportation and that prevent the need to own two cars to get to work, meaning a project that maintains a mix of uses indicates a large and stable demand – it is considered super attractive.

What is the difference compared to long-term rental?

We want to understand how permanent rental is a significant difference compared to projects that deal with long-term rental? Well, in the second option (long-term rental) the developers can sell the apartment after 25 years (plus or minus), while this is not the case here.

So how is this a worthwhile project for developers? As of today, there is still a long way to go until the option is realized. First, we will be required to offset input VAT and then the state will be required to create a variety of additional benefits.

Permanent rental around the world

A quick check shows that in the United States, permanent rental is well-known and has significant scope, and this is because everyone benefits. The residents, the state and, of course, the developers.

If we continue to compare the feasibility with what is already happening in the world today, we find that there are quite a few gaps to fill, although a look ahead reveals cautious optimism. As evidence of this, we will note the following figure: the Tel Aviv-Yafo Municipality announced that it will incorporate affordable housing in every new construction project, and it can also be seen that more and more developers are showing interest in it.

The private investor’s side

What about the private investor? Well, for him, too, this is an opportunity. First, people can decide to live in such apartments in a way that helps them save peripherally, both in terms of rent and in terms of secondary expenses (due to proximity to work, transportation, etc.), while investing the capital they accumulate in a promising real estate project, meaning they get to save on a regular basis and invest at the same time. Also, as long as significant tax benefits are incorporated, both for companies and funds and for private investors, they may be facing an incredible opportunity. Furthermore, owners of large apartments who wish to leave the property (even if the children have flown the nest) can rent out the apartment and at the same time move into such an apartment, thus generating monthly income. What about entrepreneurs? As apartment prices continue to climb, such an option will become increasingly economical, especially when the apartments are rented at prices that characterize the free market.