Israeli Real Estate Investors Face Losses on Older Apartments Without Shelters

Real estate investors in Israel are experiencing significant losses, particularly on older apartments lacking protected spaces, a trend exacerbated by the ongoing conflict. While the market once offered lucrative opportunities, such as buying apartments in Beersheba for 300,000 shekels and selling them for double after renovations, current conditions have shifted dramatically. Apartments that once cost 300,000 shekels now sell for 700,000-800,000 shekels, and renovation costs often lead to real losses.

Beersheba now represents the city with the highest real losses for investors. Some investors have relocated to Dimona and Ofakim, seeking greater tax benefits. Ofakim offers a tax credit of 18% up to an annual income ceiling of approximately 160,000 shekels, while Dimona provides a 16% tax credit up to an annual income ceiling of about 206,400 shekels for residents and tenants.

However, the situation for those who purchased older, second-hand apartments without a Mamad (a protected residential space) in Dimona in recent years has been dire. While new three-room apartments bought for 900,000 shekels between 2018-2020 now sell for 1.25-1.3 million shekels, demand for apartments without Mamads has plummeted since the war began. This has led to several instances of sellers liquidating their investments at a loss.

One example is a three-room apartment on HaTzannhanim Street, purchased four years ago for 435,000 shekels, which recently sold for 260,000 shekels, a 40% loss. Another apartment on HaShalva Street, bought in June 2021 for 515,000 shekels, was sold for 390,000 shekels, a loss of over 24% in five years. Even apartments with minimal profit margins, like one on HaMa'afil Street bought for 555,000 shekels in January 2023 and sold for 587,000 shekels, likely resulted in a net loss after accounting for legal fees, surveys, and other expenses.

This trend of declining prices for older apartments without Mamads is becoming more pronounced, especially in peripheral areas. The Central Bureau of Statistics has begun to differentiate between older apartments and those built after 1992, which typically include a Mamad or a similar protected space. While overall second-hand apartment prices dropped 1.2% last month, it is believed that older units without protected spaces are driving this decline.