Land investment
Investment in land – A significant part of the success of a business lies in taking a calculated risk. When it comes to equities, investing in a stock that is considered safe leads to consistent and low earnings. However, when investing in a stock that is considered less stable, the return that can be generated from it is high.
As for the real estate worlds, investing in an apartment is considered moderate and may lead to a reasonable return. On the other hand, a person who chooses to make investments in land will indeed “meet” with his profits after a longer period. But as long as he is patient and the land he has purchased and invested in is released, his profit will be much higher. Moreover, as the promoted planning procedures regarding the land will progress, the price will go up.
Those people who chose to invest in lands, who invested in economically viable lands, which is lands that are promoted in terms of planning and development procedures, enjoyed significant margins and high returns in relation to the amount of investment. This is because they were able to invest in land or property with high potential for improvement, invested a relatively small amount, and as a result earned a great deal.
Calculated risk - the only way to invest in land
So how much “courage” is required when you want to invest in land? How can unnecessary risks be neutralized? And how soon the investment in the land will return itself? Well, when you are interested in investing in land, there are a number of important points to keep in mind:
Examination of plans applicable to the land, including national outline plans.
Examination of land designation or promoted designation.
Examination of the rights and their registration.
Examination of the value of the land, can be checked by examining similar transactions and the investment potential.
It is important to combine common sense and examine the value of the land according to its location. It really matters in which area in the country the land is located, are there planned significant infrastructure in its vicinity (e.g. a train station), is it planned nearby an industrial development, etc.
The current trend in land investment
In this challenging period, more land investors can be found opting for the land investment channel. This is because the ability to invest in land offers a combination of identifying opportunities and equity that on the one hand is high and on the other hand, is not enough to purchase an apartment.
Hence, many of the investors who want to ensure their investment in a stable and safe field, and whose funds are not enough to buy an apartment, direct their investment to the purchase of land. Also, sometimes there are tax advantages to buying land over an apartment.
Considering investing in land? Get to know the standard that changes the rules of the game!
While investing in the stock market can be very volatile and many investors do not have enough capital needed to buy an apartment, a large part of them turn to investing in land.
Standard 22
Standard 22, approved in 2014 by the Council of Real Estate Appraisers on behalf of the Ministry of Justice, deals with land that is not available for construction, and is intended to produce maximum transparency regarding the condition of the land at the time of purchase.
Before Standard 22 was approved, many investors did not have enough information regarding the purchased land and lacked information regarding very significant issues such as the expected date of the land releasing, the designation of the land at the time of purchase and the planning procedures promoted for it.
Hence, Standard 22 provides proper disclosure with regard to the legal and planning status of the land and its value. Therefore, today land investors can feel more secure before buying land – because their investment is more understandable and clear.
All data appearing in Standard 22 are affected by properly defined inspection principles by the Ministry of Justice and the Council of Real Estate Appraisers. We will further note that the value of the land also appears in the standard and is affected by two scenarios:
- Plans approved.
- Examining the possibility that the land will be released in the future - including reference to the total steps that must be completed until full approval is received, including reference to the time that will elapse and the variety of tax payments required to implement the plan.
Investing in land!
Standard 22 means that from now on, sellers cannot sell a false representation of a future subdivision of plots, and will not be able to demand for the land a price higher than the value given based on the existing design. Hence, Standard 22 significantly benefited the investor.
Today, a land investor receives in advance important tools that help him estimate the value of the land, its purpose and its expected future. Of course, nothing is closed and sealed, but it is in a matter of examining the percentage of probability that the land in question will advance to one channel or another.
The good news that comes with this standard, more transparency and information and as a result a more informed decision!
The future of the land - rely on facts
The Israeli Central Bureau of Statistics data show that Israel’s population is expected to grow significantly and therefore the demand for residential apartments will remain inelastic. Along with the inelastic demand, the state does not issue enough tenders for the marketing of land, which leads to a lack of supply and a rise in prices. Therefore, an investment in land that may in the future yield a right to a residential apartment is an investment with the highest potential.
Examination of the land for investment
Before purchasing land for investment, it is important to consult the right professionals who have the knowledge and tools to give their professional opinion regarding the land, its value and potential for improvement.
* In most cases, there is a preference for the investment land to be privately owned land, and not owned by the Israel Land Authority. This is because often land belonging to the State of Israel includes the condition that if one day the designation of the land is changed or construction is allowed, then an additional amount of money must be paid for the aforesaid.
Purchase residential land and boost profits
Buyers interested in purchasing land on which a residential designation plan is promoted should understand that there are two points that are considered ideal for realizing their profits. The first will be when the plan has begun on approved land, and the second when the property is built, and there is a permit to populate it.
Wait or act? Investing in land!
Many who are considering investing in land are debating whether to purchase the land at an early stage or alternatively wait for the planning procedures that apply to the land to progress. In this deliberation, it is important to note that as long as land is purchased before it holds the approvals of the plans that apply to it, this will be reflected in a much reduced price. In addition, on land designated for releasing it is necessary to pay purchase tax at the rate of 6%.
Purchase a land in the initial planning stages - worth it or just tempting?
Purchasing land in the initial planning stages usually does not require large capital and at the same time can lead to a tremendous return.
At the same time, it is important to enter into such a transaction with eyes wide open, and understand that approving the planning procedures is something that takes time. That is, an investor who has an amount available for investment, and after checking the total data properly and finding that the land has high chances, he is definitely facing a worthwhile deal and his investment may bear fruit.
Finally, we will conclude by saying that we do not recommend investing in land in any situation, but the more the land is in an advanced planning process, the higher its cost will be, and this is definitely a calculated risk worth taking.
In conclusion, quite a bit of profit potential lies in investing in land. You just have to know how to expose and leverage it, and here joining the Trigo Real Estate Investment Group, is definitely a promising path that is recommended to follow in the direction of closing a worthwhile real estate transaction.
Hatchelet Beach-Herzliya Pituach
THE NEW NORTH
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Land Investment - FAQ
Every real estate asset basically consists of the land component and the construction component. The construction component is a fairly static and (relatively) cheap component, the more expensive and significant component is the land component. The increase in prices we have seen in the real estate industry in the last decade is due to an increase in the value of the land component, which is a component that is constantly increasing. The reasons for the increase in the value of the land component are:
Minority of land in areas of demand (Gush Dan with an emphasis on the Tel Aviv area).
Population growth that maintains inelastic demand.
Reducing the marketing of land by the Israel Land Authority (the body that owns most of the land in Israel).
Government instability A situation that creates a failure to formulate orderly plans for the real estate price crisis.
A significant addition of construction areas requires the development of infrastructure (transportation / electricity / sanitation / services) – the development of the infrastructure is done at a rate that is significantly lower than the constant demand for additional areas.
Many powerful entities, such as the banks, have a clear interest in maintaining existing price levels and even increasing them.
Excess regulation in the field of licensing makes it difficult to obtain building permits and significantly prolongs the duration of projects construction.
Seller’s status – it is necessary to understand the status of the seller, whether he owns the land himself or perhaps at all he took an option to purchase the land that can be traded. The matter must be examined in all relevant registers (the Land Registry / Israel Land Authority), such an examination will usually be done by an attorney in the field of real estate.
Collateral – It is important to make sure that the transaction for the purchase of the land is done in a way that protects the buyer’s money, i.e. the first payment is held by an attorney who sells in trust until a warning note is registered in favor of the buyer. In addition, part of the last payment is held in trust by the seller’s attorney until the issuance of all the permits required for the transfer of rights by the seller (tax certificates, confirmation of absence of municipal debts and confirmation of debts from the Planning and Construction Committee).
The plans that apply to the land – Every land in the country has different planning plans, district master plans, national master plans or even sometimes detailed plans (better known as the master plan). It is important to understand what the plans that apply to the land say and what rights they confer, these plans have a direct impact on the value of the land and the date of its availability for construction. Please note – plans that are in the planning process and not just approved plans must also be taken into account.
Designation of land – Every land in the country has a designation, meaning a designation that is the use that is allowed to be made of the land (for example residential / commercial / employment / industrial / craft), there are also lands that are non-designated (better known as agricultural land). The designation has a direct effect on the value of the land and the buildings that will be built on it. Please note – the fact that land is for agricultural use does not necessarily tell us that it is not worth buying, there may be a plan in the planning that intends to change the use of land.
Improvement levy – This is a levy that is 50% of the value of the improvement, provided that it was created as a result of a plan created by the authority. It is important to understand and know whether there is a liability for an improvement levy and what the rate of liability is, as a rule the liability for the payment of an improvement levy applies to the seller but the parties can agree otherwise. To the extent that there is a liability for the improvement levy, it is recommended to increase the amount held in trust by the seller’s attorney at the end of the transaction, in order to allow the attorney to pay the levy from the trust funds in case the seller refuses to do so.
Value – So what is the right amount to pay for the land we purchase? Maybe it’s too high maybe the price is great? In order to answer this question, it is possible to check in all kinds of ways, including real estate boards such as Yad2, information about real estate transactions published by the Tax Authority, consultation with realtors operating in the area or with companies that own land in the complex. Also, when determining the value one has to take into account the price of similar built properties in the area.
.This is an inaccurate definition. Purchase of land is the purchase of a share in the land and not the purchase of a right to an apartment. At the same time, usually in land that is intended for residential use, the company that sells the same land will recommend to buyers the purchase of a certain amount of square meters in land, which in the future is expected to suffice as a land unit for a residential apartment. The recommendation is a derivative of the density of housing units per dunam in the complex – if we assume the estimated density is 10 residential units per dunam, it means that the purchase of 100 square meters of land (1,000/10) will suffice in the future as a unit of land for a residential apartment. Please note – that regarding unapproved plans the issue of density is only an estimate and subject to change, sometimes even the density increases which leads to a situation where the land we have purchased will suffice for more than one unit.
.An unanswerable question. We can learn from past experience that evidence that investing in land is a solid, stable investment that enjoys a steady increase. Also, the more we hold the land until the date of its full realization (i.e. the delivery of the built property), the higher the chances of maximizing profits and increasing the viability of the investment. In addition – there are events that may significantly increase the value of the land, such as the approval of outline plans or the approval of a detailed plan from which permits can be issued.
Depending on the planning stage of the land. Today, most of the attractive land offered for sale are part of new planning complexes (Glilot Complex / 1000 Complex). The process until a building permit is obtained is:
An outline plan that is at the level of a local outline plan, the purpose of this plan is to detail the main plan, and to establish instructions and guidelines for the preparation and approval of detailed plans in its area.
Detailed plans – plans that are at a higher level of detail in accordance with the outline plan and its guidelines.
Consolidation and division, a balance and allocation table (i.e. allocate specific plots for construction to the rights holders).
4. A plan from which building permits can be issued, the planning of the building that will be erected by the rights holders and the issuance of a building permit after meeting the conditions of the licensing and planning.
.Each case on its own and there is no unequivocal answer. Each transaction must be examined on its own merits, each type of investment has its own advantages and disadvantages. In addition, it must be taken into account that each client is looking for something different from the investment. Those looking for immediate passive income are likely to opt for an apartment, those looking for a return on capital are likely to opt for a land investment.
.Most buyers when purchasing land it is in very early planning procedures. Therefore the land unit does not have a specific location and is purchased in a partnership in land. Partnership in land – indefinite ownership. Suppose a land unit is purchased that constitutes 10% of the plot, this means that every square millimeter in the plot has a cost of 10% without having to own a certain 10%. It is also important to understand in which plot exactly we are purchasing the land unit, since each plot has different characteristics that directly affect the value of the land.
.The cost varies depending on the location of the land, its purpose, the planning stage in which it is located, the plans that apply to it and the date of its availability for construction.
.At the stage of purchasing the land, the only expenses beyond the purchase amount are: 1. Purchase tax – which is 6% of the purchase amount and must be paid in a period of up to 60 days from the date of the transaction. 2. Attorney’s fee – variable amount. Payment will be made at or near the time of the transaction. 3. Brokerage expenses (not in all cases) – Payment is usually made at or near the time of the transaction.
After performing the phase of consolidation and division of the entire complex, the appraiser of the complex will place the rights holders in the complex in a certain part (the placement is done according to the balance and division tables). In determining the placement, the appraiser is subject to rules under the Planning and Building Law, in which he is required to place the rights holder in a plot that is as close (physically) as possible to the original plot in which his rights were.
.Through appraisals, any sale of land that is not available for construction requires the selling company to present to the customer an appraiser’s report under Standard 22 that determines the value of the land. The appraiser’s value of the land is determined by comparison method. In order to do this, the land is compared to similar lands or using the extraction method, i.e. the extraction of the soil component from built-up properties in adjacent areas. Of course, the appraisals take into account additional parameters such as the plans that apply to the land, its purpose, its availability for construction and the existing rights to it.
.A mortgage is a mortgage on a real estate property, so in theory there is no impediment to taking out a mortgage on real estate. However, since the land is purchased in partnership in land (see explanation above), there is a legal difficulty in allocating the mortgage to a certain part of the land and therefore some banks refuse to grant mortgages. In any case, the possibility of obtaining a secured mortgage loan should be checked with the mortgage bank before making the transaction.
.As a rule, in case the bank refuses to register a mortgage on the land then the land cannot be considered as collateral when getting a loan. At the same time, the land is a property with value and the bank takes into account the very ownership of the said property when making a decision about granting a loan.
