The question of where we should invest our money concerns many of us in our daily lives. On the one hand, we want to generate a return that will justify the fact that we are withdrawing our money from the bank. And on the other hand, we want to be confident in our investment. One market that provides a clear solution is the real estate market, which has always proven its strength and profitability. A wide range of real estate investments are available and they vary in their risk level and the return on the investment.
Residential real estate
First, when it comes to residential real estate investments, this market is characterized by high demand. This is due to several main reasons, including a 2.8% -3% increase in the population in Israel, which means that by 2040 there will be about 20 million inhabitants in Israel. The rental market is characterized by lack of social considerations. When the tenant is not given social security, this has a psychological effect on apartment buyers – who will always prefer to own their home rather than rent. The real estate market is also characterized by a dearth of supply. Currently there are no large available lands in high demand areas in Israel (the Sharon area, Central Israel and the Valley region). The State of Israel is capable of creating about 43,000 residential units per year (during the COVID-19 period the number of new residential units created was much lower). This number does not meet the existing demand, which requires the production of 60,000 housing units per year, in order to create equilibrium in the housing market. In addition, in order to cope with the rate of population growth, the State of Israel must produce 100,000 housing units each year. In the absence of this capability, real estate market prices will continue to rise at a galloping rate.
Yielding real estate
The year 2020 “re-educated” the market in terms of the employee’s physical location. Hence, some are wondering what will be the fate and future of the office sales/rentals industry. However, we believe that its future will remain as it was and will even improve, since the real estate market shows a positive trend of revival and the potential of real estate investments in this market has increased. In 2020, real estate prices in the office market fell by 8%, creating new potential investment demand for offices. Israeli high-tech is flourishing and creating new jobs, and foreign companies want to enter the Israeli market and take part in the development and in the high-tech industry (similar to Apple, Amazon and a variety of huge companies around the world). We also see a trend of “unicorn” Israeli technology companies expanding their operations and increasing the demand for offices.
At the same time, trade is changing. The demand for street parking is declining due to the increase in the activity of online stores and massive digital purchases. Hence, we believe that there is economic feasibility for logistics centers and storage areas throughout ports and airports which will constitute a new and very profitable market.
Real Estate Land
Real estate investments, which are expressed in land, are a very interesting investment channel. Additionally, there is a lack of supply of land in areas of demand. Hence, we believe that this investment channel is attractive and worthy of attention. Land investment is a long-term investment that requires a great deal of patience, given the bureaucracy that sometimes makes the going difficult in the State of Israel. However, once land development is advanced, it is a very rewarding investment. This investment channel requires a relatively low investment amount, given the fact that this is speculative investment. Yet when the land is thawed and building permits are issued, the yield percentages are extremely high.
In light of the above, the real estate market, at all levels and all types, is clearly the safest and most profitable market for investment. Real estate investment is suitable for every individual, whether they love risk, are indifferent to risk or hate risk.
Smart land investments
Real estate investing is a broad term – it includes various avenues like residential real estate and income-yielding real estate. Over the last few decades, the real estate market has proven itself to be a market that yields a high and stable return.
We are witnessing a serious shortage of available land divisions in the leading areas of demand. However, there are individual available land reserves that constitute an investment channel that embodies a much higher return compared to different investment channels. Investment land requires a low initial investment amount, and after a number of years, when the building permits are received from the various committees, the investment will yield very high yield percentages, resulting from land appreciation.
Nowadays, investing in land is the ultimate solution for young couples aspiring to own an apartment. This channel is attractive because this type of acquisition requires relatively low equity, and in a few years, the money invested will result in a tangible asset that is much lower in value than the market and embodies a high increase in value.
In addition, according to many experts, real estate and land investments are a liquid investment due to the growing shortage in areas of demand for available land and quality land divisions, and many investors turn to this type of investment channel.
Another reason that underscores the benefits of investing in real estate is the public interest inherent in the intense need to resolve the housing crisis and increase supply in this market. Local municipalities also strive to approve building permits for land divisions owned by them in order to develop the city, increase the number of residents and increase the scope of trade, which will in turn constitute a large source of additional income to cities (from municipal taxes and improvement levies). Like the local authority, the State of Israel also strives to increase the supply of real estate by issuing permits for the land divisions. This is because the state debt stands at NIS 160 billion (about 13% of GDP), and the Ministry of Finance has no desire to increase the tax burden, especially during this period of political and economic crisis. However, the state must increase its revenues, and through the real estate market it is possible to increase revenues arising from taxes and capital movements in the market. In addition, we know that another party, the banking system, is interested in developing land divisions. The banking system knows that financing land projects is considered a profitable investment and Israeli banks favor investments of this kind. Moreover, the real estate market constitutes about 24 percent of banks’ credit files.
Public transport routes
Public transportation in Israel is experiencing a positive facelift. Over the last 10 years, we have witnessed far-reaching reforms in the transportation industry that began with the paving of many roads connecting the Golan Heights and the Negev to the center of the country, and continue with huge plans to connect Gush Dan and the surrounding area by light rail. This will increase the viability of land acquisition in the high demand areas, and will reduce the financial burden on municipalities to build new roads (which will ease the burden of population growth expected to arise from the establishment of new housing units, offices and commercial areas).