Meet Dina and Ilan. They met when they were renting across the street from each other in Tel Aviv five years ago, got married and moved in together. They both work full time and earn average salaries — that’s NIS 12,117 (according to July 2022 numbers) or $3,539, per month before tax.
When they get together with friends, finding a home is all they talk about — where to buy, how much you need to buy, who has managed to buy and where. They all want to put down roots, have space to start a family and grow their wealth, and realize doing so means leaving the renting life behind.
Dreaming of homeownership, the pair have done their best to save — staying in, limiting new purchases, and avoiding the temptation to order takeout. Though they don’t have families with money to spare to help them buy their first home, they’ve still managed to save enough to put together NIS 300,000 ($88,000) for a down payment.
Meanwhile, they have watched prices for homes go up and up. When they married, the average home in Israel cost NIS 1.53 million ($448,000 at today’s exchange rate); today, it stands at NIS 1.88 million ($549,000). In the last year alone, prices have gone up 17.8 percent, and Dina and Ilan are afraid that the longer they wait, the higher prices will go, putting ownership further and further out of reach.
Dina and Ilan are composites based on real people, and their struggle for home ownership is far from unique. Speaking to experts in every part of the home-buying process, The Times of Israel is embarking on a three-part series examining what one can get with an initial investment of NIS 300,000 — to help Dina and Ilan, and anyone like them, take a first step on to the housing ladder with a relatively modest nest egg.
Part one will focus on what most real estate financial advisers recommend as the best first step: buying a property you can afford in Israel. Part two will look at what options exist for buying a home abroad, and part three will examine other ways to get into the real estate game.
Buying an affordable property in Israel today usually means making compromises on location, age or size, and sometimes all three.
Building new apartments, Central Israel, August 2022 (Danielle Nagler/Times of Israel)
Even with the NIS 300,000 in the piggy bank, lending rules prohibit first-time buyers from borrowing more than 75% of a home’s worth, capping their budget at approximately NIS 1.2 million ($350,000).
But wait: There’s less than that to spend on a property. Fees to real estate agents, lawyers and mortgage providers, as well as purchase taxes, add up to a significant amount that needs to be budgeted as well. Plus, new homeowners will need extra cash for various expenses, such as furniture, appliances, or a moving company. Independent financial adviser Ori Koskas estimates that homebuyers should plan to add 4%-5% of the total home cost, putting the actual cap for someone starting with NIS 300,000 at NIS 1.1 million ($320,000) or lower.
Another constraint comes from mortgage companies, which need to make sure monthly repayments are not more than a third of take-home pay — approximately NIS 5,000 each month after taxes for Dina and Ilan. But even with interest rates rising, a 25- or 30-year loan for NIS 900,000 should keep the monthly mortgage burden below that threshold, according to international mortgage adviser Eva Peretz.
Let the house hunt begin
Finding a home for NIS 1.1 million in Israel won’t be easy for Dina and Ilan, but it’s far from impossible. Even big cities like Jerusalem and Tel Aviv remain open, if they look hard, move fast, and are prepared to live in a less fashionable area, especially in an older building that has not yet been renovated.
For bargain-hunters determined to stay in the center of the country, the key is identifying areas where demand is lower, keeping prices from rising too swiftly, or where prices have traditionally been depressed. Many of these areas may be the focus of urban renewal efforts aimed at renovating and densifying residential buildings in city centers.
Particularly popular are homes in projects approved for TAMA 38 upgrades, which allow contractors to add additional floors onto existing buildings in exchange for earthquake-proofing the structures, and Pinui Binui projects, in which existing buildings are knocked down and replaced, usually with larger buildings. Owners of apartments in these buildings are generally given upgraded apartments in the new buildings, which can add significant value to the home, though owners also usually need to find a place to live while the work is being done, especially in tear-downs.
To find out if a property is slated for either program, a potential buyer can check what a city has planned or look at whether other buildings in the neighborhood have recently been upgraded. It can take seven to 12 years from planning to upgraded home, but there are currently major efforts to speed up the process significantly.
A view of a covered alley in the south Tel Aviv neighborhood of Florentin, on May 5, 2018. (Hadas Parush/Flash90)
Prices for properties listed below were all found on the Israel Tax Authority’s database, reflecting the prices of actual transactions.
In Tel Aviv, a two-bedroom apartment recently sold for NIS 932,824. The 62-square-meter (667-square-foot) home is on the third floor of an eight-story building on Albert Kiosso street, in a rundown area near where Tel Aviv meets Jaffa, in a working-class part of the city. Redevelopment plans for the building, constructed in 1970, are unclear. But in a city where the average price for three-room apartments like this are NIS 3.7 million ($1,078,000), the apartment was a veritable steal. Only two other homes in Tel Aviv went for less than NIS 1 million ($291,000) in the last three months.
In Jerusalem, average prices are lower, but finding something within the budget can be just as difficult. Few homes are offered for less than NIS 1.3 million, especially for buyers looking to avoid older, dilapidated buildings, and the city’s ethnographic and political divisions may further limit buying choices. As an illustration of the challenges Dina and Ilan might face, one of the few recently sold homes that fit their budget is an apartment in a 16-story building that won’t be ready until 2024. The apartment, on the northern end of the East Jerusalem Palestinian neighborhood of Beit Hanina, will only have one bedroom, but at 84 square meters (904 square feet) there is likely room for a second bedroom. The apartment sold in May for NIS 1,144,231 ($331,949).
View of the Holyland high-rise buildings next to older apartment buildings in the Gonen neighborhood of Jerusalem, January 19, 2020. (Hadas Parush/Flash90)
Alternatively, apartments at under NIS 1 million do come up from time to time, but they tend to date from the 1940s or 1950s, measure only 20 to 30 square meters, and be located in the most rundown neighborhoods.
There are more options in the northern bay metropolis of Haifa, where the average home price stands at NIS 1.34 million ($390,000), though staying within Dina and Ilan’s budget will still mean finding an older, smaller apartment. In August, a three-bedroom apartment on Leon Blum Street in the city’s hilltop Ramat Hadar neighborhood went for NIS 1.1 million. The 73-square-meter (785-square-foot) apartment is on the third floor of a four story building built in 1970.
Israel’s fourth largest city, Rishon Lezion is just a short ride away from Tel Aviv but a world away in terms of housing prices. While far from cheap, there are more than a handful of apartments available for an NIS 300,000 down payment. One, a two-bedroom apartment on Ha-Akhim Suleiman Street in the center of town, sold in August for NIS 1,000,000 ($297,089). The 98-square-meter (1,055-square-foot) apartment is on the fifth floor of a 20-story apartment built in 2004 and comes with parking.
A construction site of new residential buildings in the costal city of Netanya, on March 26,2020. Photo by Gili Yaari / Flash90
Up the coast in Netanya, new luxury high-rises tower over the city, but Dina and Ilan would likely need to find something more timeworn to stay within their budget. One such apartment, in a five-story building on centrally located Smilanski Street built in 1950, sold at the end of July for NIS 1,130,000 ($333,325). The top-floor apartment only has a single bedroom, but at 75 square meters (807 square feet), might just have enough room to squeeze in a second. There are multiple rebuilding projects going on in the area.
In general, the further one moves from Tel Aviv, the lower prices go. So in Hadera, to the north of Netanya, one might be able to find something a little newer and larger. In late July, a two-bedroom, 88-square-meter (947-square-foot) apartment on Moshe Dayan Street built in 1988 sold for NIS 1,140,000 ($332,652).
Running through Hadera, October 17, 2007. (Yossi Zamir/Flash90)
Ashkelon is also a good option for those looking for sea and a central affordable location. Prices are rising fast but in late July someone bought a three-room apartment in a 1960 building for NIS 1,060,000 ($309,575). It is on Hahistadrut Street, which is relatively central with easy access to shopping malls, covers 72 square meters (775 square feet) and is on the first floor of a four-story building.
Moving inland can be key to finding cheaper places to live, according to experts. Be’er Yaakov, which is between Ness Ziona and Rishon Lezion, is being built up fast. In mid-July a brand-new, 90-square-meter (969-square-foot) apartment sold for NIS 887,044 ($257,337). How new is it? The street it is on has yet to be named.
A neighborhood in Be’er Ya’akov in central Israel. (Be’er Ya’akov Municipality)
In Rosh Ha’ayin, on Ha’atzmaut Street, a two-bedroom 80-square-meter (861-square-foot) apartment dating from 2000 sold for NIS 1,080,000 ($331,390) in mid-August.
On the right track
Then there is the universal dream, shared by every property adviser and home-buyer, of finding somewhere that’s cheap now where prices will rise by more than the average, allowing for a move up the housing ladder even with just a relatively small initial investment.
“That’s what I’d do if I had that money available as a first-time buyer,” said Eva Peretz. “I’d buy something in Ofakim.”
Established as a development town in the 1950s to help absorb the flood of refugees arriving in Israel, Ofakim has grown slowly. It is, however, located 20 kilometers (12.4 miles) from Beersheba, a growing city where employment opportunities are expanding, making Ofakim and other surrounding towns more attractive.
Ofakim, October 2010. (Yossi Zamir/Flash 90)
A two-bedroom attached house in Ofakim sold in June for NIS 1,160,000 ($347,513). The home, on Shlomo Hamelech Street in the Shapira neighborhood, measures just 80 square meters (861 square feet), but comes with a yard measuring 252 square meters (2,713 square feet).
Simon Monk, responsible for business development at Hyposwiss Private Bank Geneva SA, which serves a large number of private clients in Israel, recommends finding value where it doesn’t yet exist.
“Buy not where the train stations are today, but where they will be in 10 years’ time,” he said. “That’s more likely where you’ll find the larger capital gains.”
That means looking at outlying areas of the country, in the north and south, where efforts are likely to take place aimed at minimizing their isolation from the nation’s economic hubs.
In Sderot, a three-bedroom apartment sold for NIS 1,070,000 ($320,455) in June. The Motzkin Street property measures 104 square meters (1,119 square feet), in a building that dates from 1991.
In Yeruham, also in the northern Negev, a four-bedroom house on Hapisga Street, near the edge of town, sold in early July for NIS 1,100,000 ($319,920). It covers 119 square meters (1,281 square feet) and was built in 1992.
An aerial view of Yeruham in the southern Negev desert on February 1, 2022. (MENAHEM KAHANA / AFP)
Dimona has been identified previously as one of the outlying cities with significant growth potential. In early July, a three-bedroom apartment on HaShahar Street sold for NIS 1,024,000 ($297,674). The home measures 111 square meters (1,195 square feet), in a nine story building built in 2020.
Plans are already in place to cut journey times on trains between Haifa and the Tel Aviv area to 30 minutes. so even places north of Haifa that are linked to it by train will one day be within commuting distance of the White City .
In the center of Haifa suburb Kiryat Ata, an apartment on Hashomer Street sold in mid-July for NIS 1,050,000 ($302,593). The five-bedroom pad measures 111 square meters (1,195 square feet), in a building constructed in 1982.
A passenger train nears Karmiel, on November 8, 2017. ( Hadas Parush/Flash90)
To the east, Karmiel was hooked into Haifa by a new train line in 2017. There, an apartment on Arbel Street recently changed hands for NIS 1,010,000 ($291,066). The three-bedroom apartment on the seventh floor of an eight-story building constructed in 1980 clocks in at 104 square meters (1,119 square feet).
At the ends of another northern line, in coastal Nahariya, a three-bedroom apartment on Wolfson Street, a relatively short walk from the beach, sold in mid-July for NIS 1,110,000 ($322,828). The 100-square-meter (1,076-square-foot) apartment dates from the 1970s.
People enjoy a hot day at the beach in the Northern Israeli city of Nahariya, on August 22, 2019. (Flash90)
It could be that none of these are suitable for Dina and Ilan and their plans. But it may not matter. Financial advisers stress that a first home can simply be an investment. By purchasing an apartment, you will get a foot on the housing ladder, and be one step closer to your dream property, even if it’s out of reach right now. Meantime, you can make a little extra income to help pay the mortgage by renting the place out, while continuing to rent yourself.
Still, potential landlords should understand that Israeli rental returns are low — generally 2-3% of the property value, stresses Tel Aviv real estate agent Daniel Goldstein. This means that rent alone is unlikely to be enough to cover a mortgage plus rent for yourself, although it will help.
Most of the value of buying a property is tied up in the rise of real estate prices over time. But by the same token, wherever you ultimately want to live the price will also have gone up over the same period.
Finance Minister Avigdor Liberman promised at the end of last year that house prices in Israel would stabilize and even fall by the end of 2022, though he said that investors should not necessarily worry.
But with demand likely to continue to outstrip supply, many professionals in the field see prices continuing to go up and up and up and up.
“We are a small country with a rising population and the demand for housing each year is greater than the number of new homes that are built, and that we could reasonably expect to be built,” said Swiss banker Monk. “There is no housing bubble in Israel. The longer you take to buy, the harder it will be.”