“Gili, if you have money, even if it’s only 150,000 shekels from savings and another 100,000 that you can get from your parents – use it immediately, and buy an apartment if you don’t have one yet,” the owner of a real estate company scolded me, as we were talking about the rush for mortgages and the steps that won’t be taken to cool down the sizzling housing market. He has a vested interest, I said to myself.
“If you continue to wait you’re likely to miss the boat,” said a real estate and finance adviser. “Buy, even a small apartment in Haifa. Before it’s too late.” Another one who makes a living from price increases, I thought.
When the researchers from the Alrov Institute for Real Estate Research at Tel Aviv University told me that “access to an apartment in Israel is gradually eroding,” and the picture isn’t going to change, I started to believe it. They told me that not even Housing and Construction Minister Zeev Elkin, Finance Minster Avigdor Lieberman and Interior Minister Ayelet Shaked believe that prices will fall, nor did their predecessors. “Nobody has any interest in lowering housing prices,” said Knesset Finance Committee chairman Moshe Gafni back in 2017.
“Anyone who hasn’t joined the bandwagon will find himself with much greater difficulties in the future,” warned Prof. Danny Ben-Shahar when we spoke about the exorbitant housing prices in Tel Aviv.
At the age of 31 – the average age for purchasing an apartment according to data from the Israel Democracy Institute (as of 2019) – I began to get pitying looks from those who own more than one property. “If you had listened to me a year ago, today you would already have made a profit of 100,000 to 200,000 shekels on the apartment I offered you,” one of the brokers with whom I spoke reprimanded me, given that housing prices have increased in the past year by more than 7.7 percent.
At the age of 32 I decided to embark on a journey to acquire my first apartment. My first impulse was to examine whether I would have any chance of buying in the neighborhood where I’m now renting in central Tel Aviv. A perusal of the Tax Authority website, and the real estate websites Madlan and Yad2, indicated that the starting price for a three-room apartment is almost 4 million shekels ($1,240,000). Even in the eastern part of the city, which is not my heart’s desire, the price per square meter is more than 25,000 shekels (in other words, secondhand apartments start at 2 million shekels, not including possible legal expenses for ownership registration and exhausting parcelization procedures).
I decided to check how much housing would cost in my home town – Kiryat Ono. Only 2 million shekels. That’s the starting price of a renovated four-room apartment in my childhood neighborhood, and 2.6 to 2.7 million shekels for a new apartment in the city’s newer neighborhoods. I realized that without 700,000 shekels for a down payment, there’s no point in looking in the cities that I’m familiar with.
“Go to Lod, you wouldn’t believe what’s going to happen there,” I recalled a senior Housing and Construction Ministry official saying at a professional conference. “You can’t cry about the high housing prices and the cost of living, without leaving Tel Aviv or the heart of Gush Dan, the Tel Aviv metropolitan area. You’re a pampered generation that has to understand: You have to start from something.”
He didn’t know that he was sending me back to my grandmother’s house. She lived in a rowhouse apartment in the city, on the third floor without an elevator, for almost 70 years. She lived there until just under six years ago, and had we rented out the apartment in the neglected housing project afterward in order to wait for prices to increase along with urban renewl projects, we would have received an extra 60 percent when we sold, or 300,000 shekels. But nobody in our family dreamt of a future as a “landlord,” certainly not in the heart of a hopeless neighborhood.
This decision, about “the biggest and most important transaction you’ll ever make” – as all the real estate advisers call it on YouTube, is a complex decision, influenced by various and sundry considerations: financial concerns and concepts, the state in the market, politics, interest rates, and emotional and psychological factors such as social and family pressure.
“You can wait for the government to take responsibility for affordable housing and develop a long-term rental market, but it’s better to live in the real world,” says Bella Barda, a real estate investment adviser and the manager of the Facebook page “Making money from real estate.”
“In another six years, anyone who doesn’t come from a very well-to-do family will have difficulty buying an apartment,” says Barda. “There’s no choice but to buy an apartment.”
Tzahi Kotinsky, owner of the podcast channel “Nadlan B’Shidur” (Real Estate Broadcast), and a real estate adviser, explains that an apartment is an investment that can be leveraged as an important tool for increasing capital: “As long as the bank is willing to hand out loans, and you can rent out the apartment or live in it and pay a mortgage – you’ve joined the housing price bandwagon. You can profit from the price increases instead of being an observer from the sidelines who misses out.”
That’s how you become part of the system, I think to myself with the disgust of someone who grew up in a Zionist youth movement. “Enough, grow up,” says Barda. “Start thinking about the children you’ll have, and about the gap between a child who grows up in Dimona and one who grows up in Kfar Sava.”
I went to meet Bar and Eliran, who even before the wedding purchased an apartment via the government’s Mechir Lamishtaken project offering affordable housing for first-time buyers. They’ve never lived in the apartment. “The project pushed us into the real estate market,” says Eliran. “We were a young couple and even before the wedding, we said – let’s register.” A lottery is held to select eligible young couples who are given a chance to buy an apartment at a subsidized price. “Maybe we’ll win the lottery, we said. And somehow that happened, and the truth is that we’re thankful to [then-Finance Minister] Moshe Kahlon [who created the project].”
They received the keys to their new apartment in Pardesiya five years ago, and rented it out while continuing to live in the center of the country. “The down payment was something we could manage from our savings from serving in the standing army and a little help from our parents, so we kind of went with the flow,” says Eliran. “Today in hindsight I can say that we were lucky, and that this apartment created a significant financial foundation for us and leverage toward our next apartment, in an area where we are more interested in living.
“Fortunately, unlike in some other projects, there were no delays and we’re renting out the apartment and can sell it in another year and a half from now, and it’s worth 800,000 shekels more than we paid for it.”
Yael and Ido Masaryk decided to buy an apartment at their parents’ urging. “After we got married our parents said that they had 500,000 shekels that they had saved for us for an apartment, and they helped us realize that if we didn’t use the money – it would simply sit in the bank and lose its value,” says Yael. “A year after the wedding we felt that that’s what we’re expected to do, and that if we don’t, we’re just wasting our money on renting.”
Next home or an investment?
“The key questions in purchasing your first apartment are where you want to live, in which area you think you’ll be working, and mainly – where you want to raise your children,” explains Kotinsky. “The answers will dictate the direction of your first property: Will it be purely an investment or your residence, where will it be located and how big it will be.”
He notes, “There are couples for whom proximity to their parents is very important, mainly because the grandparents help raise the children. Others prefer to move away. Some want to be near their workplace, and usually it’s the woman’s workplace, because in many homes she’s the one who picks up the children from preschool and school. For many young people the distance to entertainment venues is important.”
Real estate brokers and advisers recommended thoroughly examining the proximity to high quality educational and community institutions, employment centers, and public transportation and parking. They all also mentioned something that can’t be quantified: A good feeling that comes when you’re inside the apartment and imagining life in it.
I imagined myself in my corner in a sweet garden apartment, until Yifat, a 36-year-old single friend, set me straight. “Simply think about the return. At worst you’ll sell, that’s how it is with an investment, you’re not marrying the apartment.” She showed me a video in which economist and former Finance Ministry official Prof. Yaron Zelekha preaches: “Remember that this isn’t the end of the journey, but only the starting point. Don’t look for a palace for the rest of your life. When you become established you’ll buy a bigger apartment.”
Yarden, a 33-year-old mother of three, explains that she preferred to compromise on the location and condition of the apartment, knowing it would serve to increase their capital for their next purchase. “We bought a wreck in south Tel Aviv and assumed that in the next few years we won’t know where we’d raise our children and our needs would change as our family grows. But we took advantage of the time to make more money from the money. We rent it out to foreign workers and it’s already worth 600,000 shekels more than we bought it for.”
So I thought about an apartment as an investment. There are opportunities for those with small down payments of up to 250,000 shekels in the outlying areas: Haifa, the Haifa suburbs known as the Krayot, and Dimona and Sderot in the south. But I feared maintenance problems, tenants who damage the property and don’t pay in time, or difficulty finding tenants period. “Don’t be influenced by your fears,” says Barda. “The chances that you’ll have problems with tenants who destroy the apartment, or that the prices will fall overnight, are lower than the chances that the tenants will want to extend the contract for at least two or three years, or that price increases will continue.”
I start to collect more and more information about neighborhoods that look like options for investment in Arad, Sderot and even Ramat Gan.
“Take into account that it’s not just the neighborhood, but also that every property attracts different types of tenants, and in order to buy an investment apartment you have to change your outlook, and first of all see the potential tenants,” says Barda. “That’s the most important people for the transaction and you have to ask who they are and what their needs are. That will dictate the nature of the investment and how much you can charge in rent. A secular or ultra-Orthodox family, a student, a foreign worker. You have to understand the limits of the sector and how to increase the market value of the apartment.”
Some look at the profit potential of selling, while others prioritize the monthly income from rent. “Most people are looking for the whole package,” explains Barda. “Those who have more patience can look for properties that are designated for urban renewal, and invest a little in renovating the apartment until the building is torn down and rebuilt eight years from now.”
In order to find areas designated for urban renewal you can look at urban planning and policy on the Planning Administration website. It’s also a good idea to go to the area in person, and to try to meet the tenants and the neighbors and find out if they’ll be an obstacle or an advocate of such initiatives. “I did it myself in Haifa, I bought an apartment seven years ago for less than 400,000 shekels and now it’s worth 1 million, with the entire city going through renewal,” says Barda.
From my searches I learned that a 150,000- to 250,000-shekel down payment can be used to purchase an investment apartment in the outlying areas for 600,000 to 1 million shekels, on the assumption that the down payment equals at least 25 percent of the apartment’s value. Savings of 700,000 to 800,000 shekels can be the basis for an apartment costing 2 million to 2.5 million shekels, which is enough to buy in the center of the country.
“There’s also something in between,” says a girlfriend who bought an apartment in Tzur Yitzhak, a small community in the Sharon region, after getting tired of waiting for the government housing programs. If you have patience, though, that too is an option. The government is winding down the Mechir Lamishtaken project, but more inventory is reserved for the Mechir Matara (Target Price) project announced by Minister Elkin, which is slated to launch within a few months.
These apartments will probably be ready only three to five years from now, at best. This is an important opportunity for anyone with minimal savings who needs the favorable financing conditions the government programs offer, but you have to take into account that in the meanwhile, during the waiting time, purchase and rental prices and the cost of living index will probably continue to climb, perhaps even eroding the benefit.
I plucked up courage and started contacting brokers, and since then my phone has been inundated with “personally tailored” notices. In the WhatsApp profile pictures they all wear elegant suits, and just the thought of meeting them under a building in the summer heat makes me sweat. They call once every few days to ask how I’m doing and check whether I’m coming to the apartment. I’m beginning to visit apartments, sometimes as an investor and sometimes as a potential resident.
I spent another two weeks perusing Facebook groups, Madlan and Yad2 websites. I examined apartments that were put on the market and excitedly tracked those whose price increased or declined, and which apartments were sold, still avoiding what really scared me: the conversation with my bank, which would be my partner in the property for the next 22 and a half years.
Last June the mortgage market broke a new monthly record when it reached 11.6 billion shekels ($3.6 billion dollars) and the banks are continuing to fuel Israelis’ demand for apartments. I learned that most of the mortgages were partly based on the prime interest rate, which is based on the Bank of Israel’s representative interest rate, currently very low, while other parts of the loan were based on fixed interest without inflation linkage.
Those who receive the prime interest-based loans are less exposed to the dangers of growing inflation, but will take a hit if the Bank of Israel decides to raise its base interest rate. From a glance at the Facebook pages where buyers reveal the composition of their mortgages, I discovered that they tended to split their mortgage so that one-third was a prime-based loan as of 2020, the Bank of Israel’s cap for that type of loan at the time, and then, after the limit was raised in early 2021, prime-based loans crept up to nearly two-thirds of the total mortgage.
I feared that making a mistake in which mortgage I choose would be critical, especially if our available income changes in the coming years and expenses increase as our family grows, or if the state of the economy and economic policy undermine our ability to meet the payments. There’s nothing more frightening than having to limit your children’s after-school activities because you made a mistake in financial planning.
I called my bank. They’ll have time to meet with me only after the holidays, I was told. The competing bank is willing to make more of an effort for a new customer and agreed to meet within two weeks. If I already had a contract to buy an apartment I would have a problem.
The adviser and other expenses
It turns out that in order to bypass the lines at the banks you have to talk to mortgage brokers. For a payment of 5,000 to 10,000 shekels on average they will save you the wait, and will suggest a mortgage that suits my needs. “We’ll save you the ping pong and shorten the lines,” explains Baruch Fierstein, a mortgage broker and a member of the administration of the Israeli mortgage brokers association.
My instinct is to say, “I can do it alone, I don’t need another broker,” but on Instagram I come across a post by a real estate developer: “A 7.7 percent yearly increase in housing prices is only the beginning. I guarantee at least 10 percent by the end of the year,” and that makes me nervous. I won’t let 10 percent beat me.
Fierstein and others with whom I spoke confirm that I have the down payment I say I have. They all repeatedly recommend to me that I don’t mortgage the apartment of a relative or take out another non-bank loan in order to come up with a down payment, but rather rely on what I have in my account.
“All these loans inflate the burden and the monthly payment. Don’t spend more than 30 percent of your income on the mortgage,” recommends Fierstein, who also urges me to have a safety net — an emergency savings account with enough to cover at least three monthly payments —to fall back on in the event of an accident, being laid off, an economic crisis or any other surprise that could adversely affect our income.
Another two key pieces of advice that I received are to calculate all the accompanying expenses from the start and consider them part of the apartment’s cost – an increase in the construction input index if it’s a new apartment, delays in the handover date, the cost of furniture delivery and assembly, a kitchen renovation, payments to the broker, the attorney, the advisers, the appraiser and more.
“Don’t let them surprise you, it’s part of the cost of the apartment, and you don’t want to start paying a mortgage and to be suffocating already,” says Fierstein. The second piece of advice is not to get in over your head, and to check what happens if you want to pay off the mortgage partially or to recycle it and change the plan.
The signing (almost)
Meanwhile, weeks have gone by. We managed to obtain approval in principle for the mortgage. We also have recommendations for an experienced lawyer of our own, rather than one on behalf of the broker or the landlord, to accompany the transaction and read the fine print in the contract. But we have yet to meet our one and only – neither for investment nor for potential residence.
The search is exhausting. The truth is that I’m still having trouble with the idea of leaving Tel Aviv in the coming years for a distant and nondescript bedroom community. Yes, I know that I can buy and rent it out, while continuing to rent an apartment in a city, but I’m in denial. Maybe it’s also harder for us to think about taking all our parents’ savings and investing that money in concrete and floor tiles, especially when they have repeatedly told us that experiences are always preferable to walls. So we postponed the decision. We’re going on a trek in the Dolomites. We’ll talk about it again – after the holidays.