Small Investment Properties Offer Alternative to Buying Homes

A growing trend in Israel sees individuals with capital, unable to afford a residential property in their desired area, turning to the purchase of small, income-generating real estate units. These "pieces" of property, often offices, commercial spaces, or logistics units within larger complexes, are being marketed by developers as a viable alternative to traditional homeownership.

Companies like Kardan Giv'a, Nadav Laila Group, and Carville are offering these smaller units, ranging from 20 to 900 square meters, to a diverse clientele including freelancers, small to medium-sized businesses, and individual investors. The appeal lies in lower entry costs, reduced purchase taxes compared to residential properties, and potentially higher rental yields. Experts highlight that these properties can provide a steady income stream, offer tax benefits like VAT offset and depreciation, and can serve as long-term assets.

Key advantages cited include lower initial capital requirements and a 6% purchase tax rate for income-generating properties, versus 8% or more for non-primary residences. Furthermore, rental yields for these properties are estimated around 8%, significantly higher than the approximately 3% for residential rentals, often surpassing current interest rates. The flexibility in tax deductions for expenses such as maintenance, management fees, and interest also makes these investments attractive.

Developers are strategically locating these projects near residential areas and major transportation routes to ensure accessibility and demand. The planning process emphasizes creating a balanced mix of unit sizes and ensuring proper infrastructure, such as parking and shared amenities, to maintain property value and tenant satisfaction. While the trend is driven by economic factors and a desire for stable, income-producing assets, potential investors are cautioned about periods of vacancy and the associated costs, such as municipal taxes and management fees, which they would need to cover.

This market shift is also attributed to developers seeking to diversify their customer base and liquidate inventory by catering to smaller buyers, who may pay a higher price per square meter but offer a more accessible entry point. The focus is shifting from solely price per square meter to the overall quality of the building and its amenities, with developers offering property management services to maintain high standards.