Speculation in agricultural land holds many pitfalls

Agricultural land in Gedera  credit: Tamar Matsafi
Agricultural land in Gedera credit: Tamar Matsafi

It has become a NIS 1.5 billion market, but if you're thinking of buying land in the expectation of rezoning, be very wary.

Every year, on average, about 3,100 sales of privately owned agricultural land take place in Israel, for an aggregate NIS 1.5 billion. This is 30% more than the annual average number of sales ten years ago, and the sums involved are three times larger than in the first half of the previous decade, according to data compiled by the chief economist at the Ministry of Finance forwarded to "Globes".

From "Globes’" enquiries it emerges that, despite the jump in land purchases, the agricultural land being purchased now is no safer an investment than such purchases were in the past, even though some of the land, particularly in Gedera and New Tziona, is scheduled for rezoning.

The extent of purchases of agricultural land has increased considerably in recent years. In 2004 (the first year in which transactions in such land were documented) there were 1,345 deals with an aggregate value of NIS 223 million. In the first half of the last decade, the average annual totals were 2,430 deals worth an aggregate NIS 530 million. In the past few years, the averages have been 3,100 deals annually, worth NIS 1.5 billion.

The figures reflect the meteoric rise in real estate prices in Israel in the past twenty years, and also the level of expectations on the part of the buyers of agricultural land.

Investment in agricultural land can easily be more than a ten-year process, after which, in the good cases, the investor takes a profit. It is not certain, however, that such an investor could not have found more profitable places to put his money, and whether the whole headache is worthwhile. In the bad cases, the investment turns out to be a pyramid game, in which the price of the land rises as a result of a trend bereft of any real economic justification, and then the whole thing collapses when it turns out that nothing has actually happened.

We at "Globes" generally do not recommend this sector, which is essentially speculative and quite different from a solid investment in real estate, with a large gambling element. There are frequent cases involving dubious and sly operators.

Recommendations are one thing, however, and market behavior is another, and, as mentioned, deals in agricultural land are constantly on the rise.

Three segments

The agricultural land market in Israel divides into three main segments. At least recently, the largest segment has been in Arab settlements, particularly Umm al-Fahm, Arraba, and Sakhnin. It would appear that in this segment it is not a matter of speculative purchases for investment, but of purchases for agricultural purposes. This article does not deal with this segment.

A second segment is the open country between the settlements Zichron Ya’akov, Binyamina, Pardes Hanna-Karkur, and Hadera. The third is the Shefela region, between south Rishon Lezion and Gedera. These places were targeted by investors a decade ago, and are still sought after today.

Why is this so? Because it’s a case of fields close to built-up areas that look as though they will be rezoned for construction at any moment, and because housing in these areas is in high demand. There are other similar areas that attract interest, such as in the Sharon and around the Krayot, but the number of deals in these places is relatively low.

Gedera has become the agricultural land champion of Israel. According to the Israel Tax Authority, in the past year (June 2023-June 2024), there were 72 deals in agricultural land, ranging in value from NIS 12,500 to NIS 4.8 million.

Gedera is worth discussing at length, because it represents an excellent example of the best possible situation for speculators in agricultural land, with most of the land in question situated west of Herzl Street (Road 40), in the fields between Gedera and the nearby settlements of Aseret, Meishar, and Kfar Mordechai.

In the past few years, about 300 deals on agricultural land have been done in Gedera. This appears to be mainly because of the outline plan for the town approved in 2019, which expands the built-up area. Road 40 will be diverted to a new route west of Herzl Street, circumventing the Gedera local authority, and between the two roads 1,938 housing units, and commercial and business space, will be constructed.

In other words, on paper, investment in land on this site ought to ensure a handsome return. Sounds promising? Yes, but. "In general, it’s a matter of privately owned land, which the state can’t advance plans for, because the land is expensive, and many consultants and experts are required along the way to building new neighborhoods," says Slaven Panovitz, engineer of the Gedera local council. "Therefore, in the first stage it very much depends on the local council. In the years since the plan was approved we’ve been through many problems: the Covid pandemic, the war, and local elections, and so things have been delayed, a month here, a month there, six months here, six months there, and so a plan that should have been approved within two to three years will eventually be approved within seven to eight years, perhaps more.

"The future of this land depends on the new administration in Gedera, and its perhaps not certain how much they want to go ahead with it, even though there’s no statutory problem with this land, only an administrative one,"

You indicate that the local council is in no rush to implement the plan. Why is that?

"Everyone knows that residential development creates revenue problems for the local council, because of the loss it makes on the arnona (local rates), but clearly such develpoment is what makes the town. So the council is talking about doing things in stages, that is, to wait with the plans for this site until the commercial and industrial plans are developed, and then we’ll be more ready for development of the new residential areas. Today, only 5-10% of the Gedera council’s revenue comes from commerce and industry.

"We are therefore developing Gedera’s first industrial zone. The plans were approved ten years ago, but the local authority has had no revenue from it to this day. Perhaps in another year we’ll have a Big commercial center that will start to yield revenue for the council."

In other words, the implementation of the outline plan for Gedera through detailed plans could take at least another decade, because of the council’s order of priorities, and its wish to develop industrial zones first.

People have bought tiny plots there for NIS 12,500, and 360 square meter plot are being sold for NIS 272,000. What are the implications of this?

"It’s very problematic. We as a local authority have no possibility of intervening in the free market, and we can’t say, ‘Buy’, ‘Don’t buy.’ People buy very small plots of land, without sufficiently large rights. Let’s say you bought 100 square meters. After future compulsory purchases, you’ll be left with 30 square meters. And if we talk about a density of 20 housing units per dunam (1,000 square meters), you’re left with a small part of the rights that basically can’t be exercised.

"We’ll try to balance it out in the planning, but it could be that there will be many landowners like these, and it will be hard to implement the plan until a big player comes along who will buy out their plots. Until then, the plan won’t materialize."

To sum up: the rezoning of land at the outline plan level is a necessary condition for the success of the investment, but not a sufficient one. In Gedera, there are plenty of obstacles, and investment in land there is a long way from coming to fruition.

Rishon Lezion: Mostly designated for leisure

Second in the ranking of favorite places for speculative investors in agricultural land is south Rishon Lezion, in the areas north and south of Road 431. In the past year, there have been 38 deals in agricultural land there.

The problem is that most of the land within the jurisdiction of Rishon Lezion either side of Road 431 is earmarked in the regional and urban outline plans as metropolitan leisure areas. Most of the construction effort in Rishon Lezion is in the east, in the area vacated by the Tzrifin military base, and in the west, in the 1000 Complex.

This instance, like that of Gedera, exemplifies the fact that it’s not just the planning factor that is important on the way to the success of investment in agricultural land, but also the order of priorities of the local authority. In both instances, the local authority is moving in other directions.

Ten years ago, there was lively trade in areas of land north of Nes Tziona, also close to the line of Road 431, but most of this land too is in the strip designated for leisure. Another area favored by investors these days is the one north of the municipal cemetery and Neve Amit in Rehovot.

From a planning point of view, this area is interesting, since a new plan defines it as a combined metropolitan leisure and urban development area. So there will be construction there, but probably to a modest extent, and with strict planning control. The designation "urban development" also probably implies that it won’t happen soon, and, as is customary in these parts, construction there will be accompanied by objections and municipal battles.

Pardes Hanna and Binyamina: Metropolitan park

Pardes Hanna-Karkur is one of the places beloved of speculators in agricultural land, and in the past year there have been several deals there, mainly in the area enclosed by the border of the town and the Neve Asher neighborhood, and Road 65.

This area, however, is mostly marked in the regional and local outline plans as a metropolitan park. Besides that, investors in this area are recommended to check carefully the route of the future railway line due to pass through it. It has happened in the past that speculators have bought land on the route of a road or railway, and have not derived any benefit from their investments.

Finally, Binyamina, another settlement that speculators love. In the past year, land has been bought in the fields east of Binyamina, and in the west between the town and Road 4.

A general outline plan was drawn up for Binyamina and neighboring Givat Ada, but the local council and many residents objected to it, and it has yet to be approved. For the time being, the fields to the east are marked on the plan as agricultural areas, some of them even as ecological corridors, which means that the chances of them being rezoned are low.

In the west, most of the land along Road 4 is marked as agricultural, but some is marked as an industrial area. Prices of plots in that area are presumably much higher than elsewhere.

National Planning and Building Committee for Priority Housing: Not a goldmine

It is not possible to conclude this article without the following remarks. One of the biggest mistakes that speculators make arises from the wholesale rezoning by the government in the past few years through the National Planning and Building Committee for Priority Housing, in order to construct new neighborhoods on the outskirts of cities, chiefly in outlying regions. People think "Hey, agricultural land is being rezoned, and fast, even contrary to outline plans."

That’s true, but the government does these things on state owned land, controlled by the Israel Land Authority, only, and not on privately owned land, except in unusual cases (Glilot, for example). This thought is therefore fundamentally mistaken, and investors should examine the worthwhileness of any investment on this basis with open eyes.

Published by Globes, Israel business news - en.globes.co.il - on July 9, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Agricultural land in Gedera  credit: Tamar Matsafi
Agricultural land in Gedera credit: Tamar Matsafi
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