Foreign homeowners cash in on strong shekel
The falling exchange rate is boosting Finance Minister Moshe Kahlon’s efforts to keep foreign property investors away from Israel.
Major global forces are boosting Minister of Finance Moshe Kahlon’s efforts to keep foreign real estate investors away from Israel. The shekel exchange rates against the euro, pound sterling, and US dollar are plummeting, making it difficult for foreign investors to buy housing in Israel. At the same time, the feeling is that the exchange rates have bottomed out and housing prices have gone as high as they can, leading quite a few foreign residents with property in Israel, especially those in need of cash, to sell their property here and fill their pockets with Israeli cash.
The shekel-dollar exchange rate plummeted by NIS 0.30 last year, an 8% drop, and now stands at NIS 3.65/$. The shekel-pound exchange rate lost NIS 1.30 over the past year, 25%, and is now NIS 4.50/£. The shekel-euro rate fell 9% to NIS 3.90/€. Anyone planning to buy property in Israel will have to spend at least a few ten thousand more (in foreign currency terms). On the other hand, a foreign citizen selling his property in shekels will obviously benefit from the strengthening of the shekel against the currency he uses.
Less than 2%
Real estate deals by foreign residents no longer dominate the general market. Only 1,566 housing units in Israel were purchased by foreign residents in the first eight months of 2016, accounting for less than 2% of all deals. Figures from IsraTransfer, which transfers money and converts currency for foreign residents, show that the proportion of purchases made in pounds sterling dropped by 75% in the first 10 months of 2016, compared with the corresponding period in 2015. The proportion of purchasers using euros fell by 30%, while the proportion of purchasers using dollars was unchanged.
IsraTransfer says that the proportion of purchases by buyers from the French market fell to the same extent in early 2016, compared with the preceding year. It explains that this fall took place simultaneously with the establishment of the Israel Money Laundering and Terror Financing Prohibition Authority, which required foreign residents to report their income.
“The shekel-pound exchange rate is now NIS 4.51/£. It was NIS 4.60/£ a month ago, NIS 5.50/£ a year ago, and NIS 6.10/£ two years ago,” IsraTrade cofounder and head of trading Daniel Engelsman says. “This 35% plunge in two years is both stunning and severe. For the foreign currency market, this is real volatility. Changes in the foreign exchange market are usually rises or falls of less than 1%, or at most a few percent, but when the changes are so great, it can jeopardize and break countries.”
The most dramatic fall in the shekel exchange rate is unquestionably against the pound sterling, not long ago regarded as one of the world’s strongest and most stable currencies. Since the referendum on leaving the EU, however, the strong pound has become a distant memory.
“UK Jews face a serious dilemma. On the one hand, they are being confronted with rising anti-Semitism, and are therefore seeking to buy property in Israel. On the other hand, they are having trouble finding the means to do it. Some of them, it appears, prefer to take care of their economic security by saving up for a rainy day, among other things by selling the properties they have hitherto owned in Israel,” says Maxine Marks, who owns a Netanya realty. “It was easier for UK Jews to sell housing in Israel before Brexit. The slowdown is now biting and people there are clearly confused. A client of mine, a lawyer, told me that he’s worried about what will happen tomorrow. The shekel-dollar rate is going down every day, and they are more hesitant. The aim of some of them is to bolster their cash flow in the UK. The ones who sell are benefiting from the strengthening of the shekel against the pound.”
In one recent deal, a UK citizen sold a five-room luxury apartment in Netanya for NIS 3.25 million. Marx says, “When the negotiations began, the shekel-pound exchange rate was NIS 5.10/£. Now it’s NIS 4.50/£. My client eventually got £722,000, instead of £637,000 when the pricing started – £85,000 more, just because of the stronger shekel. There’s no doubt that it’s now worthwhile for them to sell housing.” She adds that just in recent days, three more UK citizens putting their apartments up for sale came into her office.
The decline in real estate investments in Israel by foreign residents began even before the meteoric strengthening of the shekel, fuelled by the severe taxation restrictions on foreign investors and residents.
As part of the measures instituted by the Ministry of Finance, the state eliminated the tax exemption for foreign residents, even if they own only a single housing unit. Actually, foreign residents have the same status for purchase tax as an Israeli investor. They pay 8% property tax on the purchase of a property for up to NIS 4.89 million, and a foreign resident pays 10% purchase tax on the value of a property in excess of NIS 4.89 million.
Emmanuel Vatari, who founded and owns of the Bayit Be Israel housing exhibitions company together with Serge Haddad, believes that the era of Jewish foreign residents buying apartments in Israel like hotcakes is over. At the same time, he says that there are still inquiries from contractors who talk about people in France, the UK, and the US interested in housing in Israel. “The situation has clearly changed, but so have the potential customers now. Jews worldwide are interesting in buying an apartment in Israel not as an investment, but for purposes of immigrating there. The feeling is that the ground is burning under the feet of Jews around the world. Something is happening, both in Europe and the US.
“Those with no sense of urgency are waiting for things to change back. All of Europe is becoming Muslim. Syrian and Turkish citizens are taking over Europe. People realize this, and many European Jews assume that they will have to immigrate here in the coming years. We feel a similar trend in the US. There is increased activity, and we’re expanding the exhibitions. A wave of anti-Semitism is arising in the US, and the shekel is not strengthening against the dollar as dramatically as against the euro and the pound.”
Vatari claims that the demand from foreign residents now is for cheaper housing than before. Before, they were seeking luxury and status; the situation now is completely different, and the idea is to get some security and a foothold in Israel. “There is more demand for cities like Ashkelon, and in even more remote outlying areas,” he says.
Adv. Efrat Levy Izhari, who specializes in representing foreign residents in real estate deals, among other things, says that the change in the exchange rates is also making the situation of buyers who have already made deals hopeless. Now that the shekel has strengthened against their currencies, they are not sure they will be able to complete their deal.
“A Manchester resident bought an apartment in Ir Yamim in Netanya for NIS 3.5 million. Under the contract terms, the first payment was 30% of the price, which he paid to the contractor. He hasn’t paid the remainder, because construction has not yet been completed. All of a sudden, he realized that the remaining 70%, which is almost unchanged in shekel terms, will cost him an additional £100,000. The customer is now thinking about how to raise the remainder, and is considering taking a loan from local banks. This is not an isolated case; there are many such cases, and every person making a transaction in foreign currency should take such a scenario into account. Still, I’m not seeing those foreign residents hurrying to cancel deals, because they still see advantages in investing in Israel, and also spiritual and patriotic advantages, too,” Levy Izhari says.