The COVID-19 year brought with it uncertainty in a wide range of areas. Like other areas, the real estate industry has been under uncertainty for some time, however with the exit from lockdowns and the return to routine we’ve seen the real estate industry recover and return to price levels that existed before the COVID-19 period – and even higher.
During 2020 there were those who speculated that real estate prices had fallen. However, after one quarter in 2021, we understand that real estate prices continue to rise and that the volume of transactions has increased. All the while, the state has stopped land marketing, causing a lack of supply relative to tough demand. Entrepreneurs who are thirsty for land reserves have continued to make significant acquisitions.
Some investors choose to enter the market through a residential real estate transaction that is characterized by a current annual return based on cash flow that comes from renting the property, which ranges from 2 to 5 percent on average. There is dependence on areas in demand and age of the property. As a rule, the higher in demand the area, the ongoing return is lower given a lower level of risk. As for the age of the property, the older the property, the greater the maintenance costs and cumulative depreciation. Additionally, investors who choose this channel usually benefit from the increase in value which of course is due to lack of supply relative to excess demand.
Another type of investment is commercial real estate (which includes employment areas, offices and commerce). Some investors see this channel as an investment channel that requires low equity compared to carrying out residential real estate investments and current yield resulting from cash flow received from the tenant. It is important to understand that this channel requires the property owners to perform regular maintenance, which could possibly harm the current yield. Also, despite diverse opinions about the office market, we see that this market is recovering and even rising, and investors continue to enjoy the fruits of the market. In addition, sometimes the time it takes to build yielding real estate projects is shorter than residential real estate because local authorities give this market priority in the advancement of plans due to the profitability of this market compared to residential real estate market (for example, as a result of property taxes, infrastructure levies, etc.)
Another appealing investment that the real estate market has to offer is the purchase of land. In order to invest in this type of investment prospect, the investor must understand the process that takes place. In this process, the various planning authorities mark vacant land futures as fields designated for municipal development. As part of this process, the process of changing the land’s zoning classification, to residential, for instance, commences. Next, there is the planning stage and approval of the plans that apply to the land, and finally, the planning and approval of the master plan, by virtue of which building permits can be issued. Investors looking to make a long-term investment seek such land reserves in areas of demand in the hope that after a process of several years, they will be able to appreciate the land to produce a return of tens of percent. It is important to understand that the earlier we enter the investment, the more virgin the land will be, the higher the risk, the longer the maturity will be and therefore, as a result, the return will be much higher.