The largest growth in purchases of Israeli real estate by Diaspora Jews in 2006 was neither French nor Americans, but apparently the unassuming British. An amendment to British pension laws has the potential for much greater investment, and possibly not just from British Jews.
Many contractors, apartment owners, and brokers in Netanya, Herzliya Pituah, Tel Aviv, and Eilat have been well aware of the British invasion in the past two years, but it turns out that a dramatic change in UK law may expand the mandate, and give Israeli developers real opportunities to offer their wares to British citizens who are not Jews.
In an interview with “Globes”, Adv. Raymond N. Goodman of the Liverpool firm Goodmans Solictors said that the UK Finance Act 2006, which came into effect on April 6, 2006, allows British citizens to use their Self Invested Personal Pensions (SIPP) to buy a wide range of properties throughout the world. The Finance Act grants generous tax breaks and exemptions, and allows people putting money into pensions to manage their savings through authorized pension providers who provide the investment framework around the world.
Potential investment is allowed both in residential and income-producing property in Israel and other countries, subject to a number of conditions. That said, anyone dreaming of wholesale purchases of Israeli holiday homes by British buyers is fantasizing, since the tax break is not given for properties bought for personal use, but only for properties bought as investments. Currently, a tax break of up to 100% is given on annual profits of up to ₤215,000.
Goodman says most real estate purchases until now were made by British Jews, but adds, “If Israelis plan well, they can reach the broader British public that is seeking to invest in developing economies. The Israeli market is more sophisticated than markets in Eastern Europe, and is more attractive. Despite the problems and Lebanon, the positive balance of payments tells the British something about the Israeli economy. You only have to read it right and know the market.”
He says that Jews buy a lot on Spain’s Costa del Sol because it’s nearby and easy, but because of rising prices there, the time has come to make a foothold in Israel. “Many projects are marketed to the British. When I ask my friends who buy a holiday home in Spain why they don’t do the same in Israel, in Eilat for example, they say they would but there are no golf courses.”
Netanya real estate agent Barry Shore is enthusiastic about the growing British presence, which has greatly boosted his business, 90% of which now comes from the UK. He says that the Israelis’ idea of the true origin of most real estate investment by Diaspora Jews is wrong. “The British are buying more real estate than the French, but they do it more discretely, without the panache and flair of the French. Discretion is part of the British character,” says Shore, who, like most of his employees, is a British immigrant. “The British economy is stronger than the French, and the British can allow themselves to spend more.”
Shore disagrees with the conventional wisdom that the French dominate the local real estate market. He says most property buyers in the Netanya and Herzliya Pituah areas are British. “The French claim that they lack the wherewithal to buy there, and they buy in Ashdod or Eilat,” he says, adding that most property purchases are of holiday homes, or holiday homes ahead of immigrating. After the purchase of holiday homes, whose value quickly rises, many buyers also purchase apartments for investment because they believe more in the Israeli economy than the British economy.
Shore, a Mancunean, mentions the characteristics of British real estate deals in Israel. He cites the numerous apartments sold in South Beach, a fairly limited area in Netanya. “Contractors who are prepared to add facilities of the kind the British expect in their holiday homes, will have many buyers, even though prices are fairly high. The British don’t object to paying more, if there is value.”
The British like large balconies with sea views, a detailed technical blueprint, central air conditioning, a heated swimming pool, and “Sabbath elevators”. Shore warns, however, “The British do not like all the little gimmicks of the Israeli contractor. They are not prepared to pay for a luxury apartment and then add air conditioning, or get hit with extra demands later on. The contractor must give high quality to meet the demands of the British buyer.”
Shore mentions a number of projects on the Netanya coastline that were marketed in full to British buyers. He says contractors prepared to adapt to the British buyers’ demands are able to sell all their apartments within months of the start of construction. “In contrast, contractors who insist on saying, ‘I’ll build as I like,’ forego British buyers.
Shore says that besides South Beach, British customers are also buying in northern Netanya on Nitza Boulevard, Herzliya Pituah, Ra’anana, and near the Eilat waterfront. “More religious people buy apartments in Jerusalem, and young immigrants buy in Ramat Beit Shemesh, Modi’in, and also in East Netanya.
Shore definitely believes that the new pension rules could open the Israeli real estate market to new British buyers. “The idea of investing pension plans will enable British citizens to buy a lot in Netanya with ten apartments, so that each person will own a tenth of the project, and an apartment that cost $140,000 to build will have an immediate value of $180,000. In addition to the British tax exemption, because this is a single apartment in Israel, the buyers will be eligible for tax breaks in Israel.”
He says that although rental returns in the UK are higher than in Israel, real estate prices in the UK are at a peak, whereas in Israel it is still possible to make handsome capital gains on tax-exempt investments. The 40% UK inheritance tax also encourages the move to real estate investment in Israel.
Shore cautions, however, that figures about British Jews “also depend on the heart. Although they can get better return in Bulgaria, they do not only look at the financial return.” He talks about a boom in projects marketed to British buyers. “People who bought properties for $300,000 18 months ago, or even at the beginning of the year can now sell them for $450,000-500,000, and there is heavy demand.”
Shore mentions three buildings on Netanya’s South Beach - Royal Radiance, Duet, and Royal Palace - with 110 British apartments, and 50 more apartments to be occupied only by British. “Contractors are standing in line, because only the British are willing to pay half a million dollars for a four-room apartment in a high-standard building with a swimming pool, fitness room, and Sabbath elevator. For the British, this is only £250,000. If you ask someone in London what he could buy with that amount, it might only be a studio flat somewhere.”
Shore says that so long as it sounds cheap to the British, because of the pound sterling/US dollar exchange rate, there is a window of opportunity. He believes, however, that the rush will only last through the summer of 2007, and that currency changes by year-end and the fact that most British buyers with ready cash will already own property in Israel, will cause the window of opportunity to close.
Shore lists other features the British want in projects: location - a sea view or across from the Old City of Jerusalem; buying on the blueprint, before the contractor begins construction, because of the cheap price; and to reside in a building with people like themselves. He says that the difference between the British and Israeli apartment cultures is also reflected in the high-standard building where Israelis live. Whereas Israelis will be satisfied with a cleaner once or twice a week, the British will pay more to have a permanent maintenance and cleaning man. He says, “Almost any price can be asked” for a building with a suitable plan and good reputation.
Mati Monk, from the Bank of Jerusalem’s international department, says that the British invasion began four or five years ago, but that the window of opportunity opened wider two or three years ago, when the pound sterling reached and exceeded $1.80, which made it easier for the British to buy property in Israel. Tax laws and local citizenship encouraged the purchase of property outside the UK. He believes that British discomfort with a growing Islamic presence and rising anti-Semitism has caused them to feel “it would be a good idea to own an apartment somewhere else.”
Monk also sees increasing purchases in Jerusalem and Netanya. He says that many Jews also profited from rising real estate prices in the UK, and that prices there no longer seem so attractive. Consequently, many Jews are seeking properties in other countries.
Monk estimates that direct investment in Israeli real estate by British citizens exceeded $300 million in 2006 alone. He says, “The British understand that when you invest in real estate in another country, you need a local partner to supervise the investment, and every Jew has someone to supervise property in Israel. In addition, Israel’s economy is stable, which makes it an attractive destination not only for the purchase of apartments to live in, but also as investments. British real estate mavens are interested in almost every project in Israel.”
Monk, who travels frequently to the UK as part of his job, doubts whether tax breaks will attract non-Jewish investors to Israel. “At the moment, non-Jewish buyers are only at the margins. To the average Briton, Israel is a place at war. It’s hard to sell the Israeli real estate market. Whereas Israeli high-tech has a reputation in among the British, they will be scared of the real estate market.”
Published by Globes [online], Israel business news - www.globes.co.il - on January 15, 2007
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