Buying Property in Israel for Long-Term

Investment

Current Market Landscape

The Israeli real estate market is experiencing a period of adjustment after years of rapid growth. Property prices have shown mixed signals in 2025, with an overall slight decline of 2.48% nationally in Q2 2025, though major cities like Tel Aviv continue to see increases of around 5%. By late 2024, annual price growth was running at 7-8% year-over-year, demonstrating the market's underlying resilience despite geopolitical tensions and economic pressures.

The fundamentals remain strong: Israel has extremely limited land availability combined with a growing population, creating persistent housing demand. The country's small geographic footprint means supply is structurally constrained, which has historically pushed prices upward over the long term. From 2006 to 2017, house prices soared 118% (82% in real terms), making it one of the strongest-performing real estate markets globally.

Who Can Buy and What Types of Property

Foreign Ownership Rights

Foreigners can legally purchase property in Israel regardless of nationality or religion. You don't need residency status, a visa, or Israeli citizenship to buy. Both Jewish and non-Jewish foreign nationals have the same property ownership rights, with some important distinctions about land versus buildings.

State-Owned vs. Private Land

Understanding land ownership structure is critical:

State-Owned Land (93% of Israel):

ï           Managed by the Israel Land Authority (ILA) and Jewish National Fund

ï           Cannot be purchased outright by anyone (Israeli or foreign)

ï           Available through long-term leasehold agreements (49-99 years, renewable)

ï           You own the building/apartment but lease the land beneath it

ï           More restrictions and bureaucracy

Private Land (7% of Israel):

ï           Can be purchased outright with full freehold ownership

ï           Concentrated in urban areas: Tel Aviv, Jerusalem, Haifa, Herzliya

ï           Fewer restrictions on transactions

ï           Generally preferred by foreign investors for its simplicity and flexibility

ï           Commands premium prices but offers greater control

Property Types Available:

ï           Residential apartments and houses

ï           Commercial properties (office buildings, retail spaces)

ï           Industrial properties

ï           Mixed-use developments

ï           Land plots (on private land only for most foreigners)

Restrictions:

ï           Agricultural land is generally off-limits unless you're an Israeli farmer or cooperative member

ï           Some areas near security zones may have purchase restrictions

ï           No limit on the number of properties you can own

Financial Requirements and Costs

Down Payment and Mortgages

Israeli banks will lend to foreigners, but terms are stricter than for residents:

Mortgage Terms:

ï           **Loan-to-Value: **Maximum 50-60% (meaning 40-50% down payment required)

ï           **Interest Rates: **4.8-5% for shekel mortgages (15-30 year terms)

ï           **Dollar Mortgages: **Around 7.5%

ï           **Euro Mortgages: **Around 6.5%

Major banks serving foreign buyers include Bank Mizrahi-Tefahot, Bank Leumi, and Bank Hapoalim, all with international departments. The approval process takes longer for foreigners as banks need to verify overseas income and assets. You'll need:

ï           Proof of income (2+ years of tax returns, pay stubs)

ï           Bank statements

ï           Credit history

ï           Valid passport

ï           Israeli tax ID number

Purchase Tax (Mas Rechisha)

This is one of your largest costs. For non-residents buying property:

ï           **0-₪6,055,070 ($1.73 million): **8%

ï           **Above ₪6,055,070: **10%

These brackets are adjusted annually for inflation (valid through January 2025). For residents and new immigrants (olim), rates are significantly lower: 0% on the first ₪1,978,745, then 3.5%, 5%, and 8% on higher brackets. New immigrants enjoy reduced rates for 7 years.

If you become an Israeli resident within 2 years of purchasing, or if you're a returning resident after 10+ years abroad, you may qualify for the lower resident rates.

Additional Costs (6-9% of purchase price):

ï           **Legal Fees: **1-1.5% plus VAT - hiring an Israeli lawyer is mandatory

ï           **Real Estate Agent Commission: **2% plus VAT (often split between buyer and seller)

ï           Land Registry Fees: 0.5%

ï           **Stamp Duty/Registration Fees: **Variable

ï           **Structural Inspection: **Optional but recommended, especially for older buildings

ï           **VAT on New Construction: **18% (increased from 17% in January 2025)

Ongoing Costs:

ï           **Arnona (Municipal Property Tax): **Varies by city and property size; increased 5.2% in 2025 (largest jump in 17 years)

ï           **Building Maintenance Fees (Vaad Bayit): **For apartments in buildings, covers upkeep and repairs

ï           **Property Management: **If renting out (typically 8-10% of rental income)

ï           **Insurance: **Home insurance required

ï           **Capital Gains Tax (Mas Shevach): **When selling, calculated on appreciation

Best Locations for Long-Term Investment

**Tier 1: Premium Appreciation Markets Tel Aviv **(₪4.37M / $1.29M average)

ï           Israel's financial and tech hub

ï           Highest prices but strongest long-term appreciation (9.4% in 2024)

ï           Rental yields: 2-2.5% (lower yields due to high prices)

ï           Best neighborhoods: Rothschild Boulevard, Neve Tzedek, Florentin, Old North

ï           Target buyers: Wealthy foreign investors, tech workers, diaspora seeking prestige

ï           Limited supply drives consistent price growth

**Herzliya **(₪3.69M / $1.09M average)

ï           Luxury coastal city, especially Herzliya Pituach

ï           Beachfront villas and high-end apartments

ï           More relaxed than Tel Aviv but close proximity

ï           Strong expat community

ï           Saw 8.3% price decline in 2025 (potential buying opportunity)

**Jerusalem **(₪3.02M / $892k average)

ï           Cultural, religious, and historical significance

ï           Most popular with foreign buyers (over 60% of foreign purchases)

ï           Neighborhoods: Baka, Katamon, Ramot Sharett, German Colony, Rehavia, Talbiya

ï           Strong Anglo community providing social networks

ï           Steady appreciation but slower than Tel Aviv

ï           Mix of tradition and modernity

**Tier 2: Balanced Markets (Yield + Growth) Haifa **(3-4% yields)

ï           Northern port city with industrial and tech sectors

ï           Strong price growth: 11% in 2024, 11.7% annual growth

ï           Carmel District and German Colony neighborhoods

ï           More affordable than Tel Aviv/Jerusalem

ï           Scenic Mediterranean views

ï           Growing tech sector attraction

**Netanya **(₪2.8M average)

ï           Coastal city popular with retirees and second-home buyers

ï           Strong expat community, especially French speakers

ï           Ir Yamim luxury development and South Beach areas

ï           More accessible prices than Tel Aviv

ï           Good rental demand from retirees and families

Ra'anana/Modi'in/Givat Shmuel

ï           Suburban cities with strong appeal to Anglo immigrants

ï           Excellent schools and quality of life

ï           Proximity to Tel Aviv and Jerusalem

ï           Family-friendly communities

ï           Growing foreign buyer interest

**Tier 3: High-Yield Value Markets Be'er Sheva **(₪1.27M / $376k average)

ï           Highest rental yields in Israel: 4-6%

ï           Lowest average property prices

ï           Large student population (Ben Gurion University)

ï           Growing tech sector (Cyberpark)

ï           IDF technology units relocating here

ï           Major infrastructure investments

ï           Strong rental demand, best for cash-flow investors

Ashdod

ï           Port city with industrial base

ï           Affordable housing options

ï           Saw 7.97% price decline in 2025 (correction creating opportunity)

**Rehovot **(2.46% price increase in 2025)

ï           Central location with research institutes

ï           Growing tech presence

ï           More affordable than nearby cities

Emerging Southern Markets:

Dimona/Yeruham

ï           Explosive growth: Dimona up nearly 20% in 2024

ï           Government incentives for Negev development

ï           Very affordable entry points

ï           Higher risk but strong appreciation potential

ï           Strategic national development focus

Rental Market Dynamics

Rental Demand is Booming

The percentage of Israeli households renting has increased from 24.3% in 2013 to 28.1% in 2022, driven by:

ï           High purchase prices making homeownership less accessible

ï           Younger generation preferring flexibility

ï           Rising interest rates pushing buyers to rent instead

ï           Limited housing supply

This structural shift toward renting is excellent news for landlords and long-term investors.

Rental Rates (2024-2025):

ï           **National Average: **₪5,200/month for 4-room apartment

ï           **Tel Aviv: **₪8,000+/month

ï           **Jerusalem: **₪6,000-7,000/month

ï           **Be'er Sheva: **₪3,500-4,500/month

Rental Market Trends:

ï           New tenants paying 4% more than previous tenants

ï           Lease renewals up 2.6% on average

ï           Low vacancy rates creating tenant competition

ï           Bidding wars in desirable areas

ï           Standard leases: 12 months, often with 2-3 year agreements and built-in price adjustments

Short-Term Rentals (Airbnb):

Legal in most cities but with increasing regulations:

ï           Tel Aviv and Jerusalem have restrictions in residential buildings

ï           Requires proper licensing and tax compliance

ï           Can generate higher income but more management intensive

ï           Check local municipal rules before purchasing for this purpose

Complete Buying Process

Step 1: Preparation (Before Visiting Israel)

1.              Get Israeli Tax ID Number

◦                    Apply through Israeli embassy/consulate in your country

◦                    Required for all property transactions

◦                    Processing time: 2-4 weeks

2.              Research and Planning

◦                    Define investment goals: rental income vs. appreciation

◦                    Determine budget including all costs

◦                    Choose target cities/neighborhoods

◦                    Connect with English-speaking real estate agents

3.              Secure Financing Pre-Approval

◦                    If seeking mortgage, contact Israeli banks' international departments

◦                    Gather financial documentation

◦                    Get pre-approval to understand borrowing capacity

Step 2: Property Search and Selection

1.              Work with Local Real Estate Agent

◦                    Agents typically charge 2% + VAT commission

◦                    Essential for navigating local market

◦                    Can arrange virtual tours if you're abroad

2.              Visit Properties

◦                    Many buyers complete purchases without visiting Israel, but recommended

◦                    Check building condition, neighborhood, amenities

◦                    Ask about arnona costs, vaad bayit fees

3.              Due Diligence

◦                    Verify ownership at Land Registry (Tabu)

◦                    Check for liens, encumbrances, unpaid taxes

◦                    Confirm zoning and building permits

◦                    Determine if land is state-owned or private

◦                    For leasehold, verify years remaining and renewal terms

Step 3: Legal Process

1.              Hire Israeli Real Estate Lawyer (Critical)

◦                    Non-negotiable requirement

◦                    Costs: 1-1.5% + VAT

◦                    Must be experienced in foreign buyer transactions

◦                    They will:

▪                    Review all contracts (in Hebrew)

▪                    Conduct title search

▪                    Verify seller's ownership

▪                    Check for legal issues

▪                    Prepare purchase agreement

▪                    Handle closing process

2.              Open Israeli Bank Account

◦                    Required for mortgage and ongoing payments

◦                    Can open foreign resident account with passport + photo ID

◦                    Some banks let you open remotely

◦                    Or lawyer can open escrow/trust account for transaction

3.              Sign Purchase Agreement (Hozeh Rechisha)

◦                    Typically includes 10% deposit

◦                    Contract in Hebrew and your language

◦                    Outlines payment schedule, completion date, conditions

◦                    Lawyer explains every clause

4.              Transfer Funds

◦                    From your home country to Israeli account

◦                    Requires documentation justifying transfer (purchase contract)

◦                    Bank fees apply

◦                    Consider currency exchange timing

Step 4: Closing

1.              Final Payments

◦                    Pay remaining balance (minus mortgage if applicable)

◦                    Pay purchase tax within 50 days of contract signing

◦                    Pay legal fees, registration fees, agent commission

2.              Register Property

◦                    Lawyer registers transfer at Land Registry

◦                    You receive official ownership documents

◦                    Get property registered in your name

3.              Receive Keys and Apartment

◦                    Final walkthrough with agent

◦                    Transfer utilities to your name

◦                    Arrange insurance

**Timeline: **Entire process typically takes 2-4 months from offer to closing.

2025 Market Dynamics and Opportunities

Current Challenges:

ï           **Interest Rates: **Near 5% mortgages dampening buyer enthusiasm

ï           **Reduced Transaction Volume: **January 2025 saw lowest home sales in 10+ years

ï           **Tax Increases: **VAT up to 18%, arnona up 5.2%

ï           **Geopolitical Uncertainty: **Regional tensions affecting sentiment

ï           **Affordability Crisis: **Prices rising faster than wages

Hidden Opportunities:

Despite challenges, smart investors see advantages:

**1.        Negotiation Power: **Lower transaction volumes mean sellers more willing to negotiate

**2.        Currency Advantage: **If shekel weakens, dollar/euro holders gain purchasing power

**3.        Market Correction: **Some overheated suburbs showing small declines, creating entry points

**4.        Government Land Auctions: **Prices down 40% from 2022 peaks in areas like Tel Aviv's Sde Dov

**5.        Distressed Situations: **Commercial vacancies and slower sales creating deals

Strong Underlying Fundamentals:

ï           Population growth continues (natural increase + immigration)

ï           Housing shortage persists (supply dramatically lags demand)

ï           Tech sector remains robust despite global slowdown

ï           Foreign investment surged 48% in 2023 vs. 2022

ï           Diaspora Jews increasingly see Israel as safe haven

ï           Limited land means supply will always be constrained

Government Initiatives:

ï           Tax exemptions for new immigrants (olim) up to ₪6M properties

ï           Discussing tax cuts for first-time and young buyers

ï           Infrastructure investments in periphery (₪14B in northern region)

ï           Fast-track construction permits in some areas

ï           Development incentives for Negev and Galilee

Investment Strategies for Different Goals

Strategy 1: Cash Flow / Rental Income Best For: **Investors wanting monthly income **Target Locations:

ï           Be'er Sheva (4-6% yields)

ï           Haifa (3-4% yields)

ï           Ashdod, Rehovot

ï           Areas near universities

Property Type:

ï           3-4 room apartments

ï           Near public transportation

ï           Good condition requiring minimal renovation

ï           Areas with student or young professional demand

Financial Approach:

ï           Consider all-cash if possible (no mortgage costs)

ï           Or use mortgage but ensure rental income covers payments

ï           Budget for management fees, vacancies, maintenance

**Expected Returns: **3-6% annual rental yield

Strategy 2: Capital Appreciation

**Best For: **Long-term investors (10+ years) seeking wealth building

Target Locations:

ï           Tel Aviv (highest appreciation)

ï           Jerusalem (steady growth)

ï           Herzliya (luxury market)

ï           Northern suburbs with infrastructure development

Property Type:

ï           Prime locations even if smaller units

ï           Near future transit projects

ï           Gentrifying neighborhoods

ï           Quality over quantity

Financial Approach:

ï           Can tolerate lower rental yields

ï           Focus on areas with supply constraints

ï           Buy during market corrections

ï           Hold through cycles

**Expected Returns: **5-10% annual appreciation (historical average)

Strategy 3: Balanced Approach

**Best For: **Investors wanting both income and growth

Target Locations:

ï           Netanya

ï           Haifa

ï           Modi'in

ï           Ra'anana

ï           Peripheral Tel Aviv

Property Type:

ï           3-4 rooms in family-friendly areas

ï           Good schools and amenities

ï           Growing infrastructure

**Expected Returns: **2-4% yield + 4-7% appreciation

Strategy 4: Value Add / Renovation

**Best For: **Hands-on investors comfortable with risk

Target Locations:

ï           Older buildings in appreciating neighborhoods

ï           South Tel Aviv (Florentin, Jaffa)

ï           Jerusalem neighborhoods undergoing gentrification

ï           Any area with renovation potential

Approach:

ï           Buy outdated properties at discount

ï           Renovate to modern standards

ï           Rent at premium or sell for profit

ï           Requires local contractors and oversight

**Expected Returns: **15-25% total return (if executed well)

Tax Considerations and Optimization

Purchase Tax Strategies:

**1.        Time Your Aliyah: **If planning to make aliyah, buy within 1 year before or 7 years after to get resident rates

**2.        Marry an Israeli: **Sounds extreme, but if your spouse becomes an oleh, you qualify for lower rates

**3.        Structure Ownership: **Consult tax advisor on optimal ownership structure

Ongoing Tax Obligations:

ï           **Rental Income: **Subject to Israeli income tax (10-50% brackets depending on amount)

ï           **Foreign Residents: **May be taxed only on Israeli-source income

ï           **Tax Treaties: **Most countries have treaties with Israel to avoid double taxation

ï           **Arnona: **Based on property size and location, paid bi-monthly or annually

Capital Gains Tax (When Selling):

ï           **Mas Shevach: **Tax on property appreciation

ï           **Rates: **Vary based on holding period and residency status

ï           Exemptions:

◦           Main residence may be exempt (conditions apply)

◦           New immigrants get benefits for 10 years

◦           Longer holding periods get graduated benefits

ï           **Additional 2% "Wealth Tax": **On high-value transactions (₪10M+)

Foreign Income Reporting:

ï           If you become Israeli tax resident (183+ days/year in Israel), must report worldwide income

ï           If non-resident, only Israeli-source income taxable

ï           Consult international tax advisor for your specific situation

Practical Tips for Foreign Investors

Managing from Abroad:

1.              Property Management Company

◦                    Essential if not living in Israel

◦                    Handles tenants, maintenance, rent collection

◦                    Costs: 8-10% of rental income

◦                    Choose English-speaking company with experience in foreign-owned properties

2.              Bank Account Management

◦                    Set up online banking in English

◦                    Arrange international wire transfers

◦                    Monitor for arnona and vaad bayit payments

3.              Annual Visits

◦                    Budget for yearly trips to inspect property

◦                    Meet with management company

◦                    Address any issues personally

Language Barriers:

ï           All official documents in Hebrew

ï           Must have lawyer translate contracts

ï           Property management should offer English communication

ï           Consider neighborhoods with English-speaking communities

Cultural Considerations:

ï           Israeli negotiation style is direct and assertive

ï           Everything is negotiable (don't accept first offer)

ï           Bureaucracy can be slow and frustrating

ï           Relationships matter - build rapport with agents, lawyers, managers

ï           Friday afternoon through Saturday (Shabbat) everything closes

Red Flags to Avoid:

ï           Properties without clear title

ï           Sellers rushing you to close quickly

ï           Deals that seem too good to be true

ï           Unlicensed agents or lawyers

ï           Properties in disputed areas without full disclosure

ï           Buildings with major structural issues or code violations

Market Outlook: Next 3-5 Years

Bullish Factors:

**1.        Demographics: **Israel's population growing 2% annually (highest in OECD)

**2.        Immigration: **Continued aliyah from Western countries (antisemitism driving French, American Jews)

**3.        Tech Sector: **"Startup Nation" remains innovation hub attracting talent and capital

**4.        Supply Shortage: **Takes 3-7 years to bring new housing to market; shortage will persist

**5.        Foreign Safe Haven: **Diaspora increasingly sees Israeli property as portfolio diversification

**6.        Infrastructure: **Major transportation projects increasing connectivity and property values

Bearish Factors:

**1.        Affordability Crisis: **Prices rising faster than income, risking market freeze

**2.        Geopolitical Risk: **Regional conflicts could deter foreign investment

**3.        Interest Rates: **If rates stay high, mortgage demand stays suppressed

**4.        Overvaluation: **Some areas may be overpriced relative to fundamentals

**5.        Government Policy: **Unpredictable regulatory changes

Consensus Outlook:

Most analysts expect:

ï           **Short-term (2025): **Continued moderate price growth of 3-6% as market stabilizes

ï           **Medium-term (2026-2027): **Acceleration back to 7-10% if interest rates drop and stability returns

ï           **Long-term (5-10 years): **Strong fundamentals support continued appreciation, though likely not matching 2010s boom

Final Recommendations

For First-Time Foreign Buyers:

**1.        Start with established markets **(Tel Aviv, Jerusalem, Netanya) where processes are smoother

**2.        Budget 60-70% of purchase price **in liquid funds to cover down payment, taxes, and costs

**3.        Plan 3-6 months **from decision to closing

**4.        Visit Israel **at least once during process if possible

**5.        Join expat communities **online for advice and referrals

**6.        Think 5-10+ year hold **minimum to ride out volatility

For Experienced Investors:

**1.        Explore peripheral markets **(Be'er Sheva, southern cities) for higher yields

**2.        Consider commercial property **if comfortable with complexity

**3.        Time purchases **during market dips (possibly now in 2025)

**4.        Diversify **across multiple properties if budget allows

**5.        Stay informed **on government policy and infrastructure projects

Essential Team:

ï           Israeli real estate lawyer specializing in foreign buyers

ï           English-speaking real estate agent with local expertise

ï           Mortgage broker (if financing)

ï           Property management company

ï           Israeli and home-country tax advisors

ï           Insurance agent

Risk Management:

ï           Never invest more than you can afford to lose

ï           Maintain emergency fund for repairs, vacancies

ï           Insure adequately

ï           Diversify (don't put all capital in one property)

ï           Have exit strategy planned

The Israeli real estate market offers compelling long-term opportunities for foreign investors willing to navigate its complexities. The combination of structural supply shortage, population growth, and strong economic fundamentals creates a foundation for sustained appreciation, while growing rental demand provides income potential. Current market conditions may actually present strategic entry points for patient investors with a long-term perspective.

Updated on: 02/02/2026