A real estate investor should be wary of the risk of investing in an investment property or real estate that is subject to the same foreign investment restrictions as an Israeli real estate project, the Financial Times reported Tuesday.
In an article titled “Investors Should Be Aware of the Real Estate Risk,” the Financial New York newspaper warned that real estate investments are subject to a variety of foreign investment regulations.
The rules, however, are often lax.
The newspaper cited data from the International Monetary Fund that shows real estate investors in Israel make up just 0.5 percent of the country’s population.
But the report noted that real property deals are subject “to much stricter conditions” than other investments.
While real estate is not considered a currency in the Israeli economy, real estate deals are regulated as “a commodity,” the report said.
Real estate investment companies often invest in properties with similar foreign investment laws as Israeli real property, which are often purchased by foreign investors who can then transfer ownership to a non-Israeli entity.
According to the report, Israeli realtors have historically not paid taxes on any of their real estate profits.
The government of Prime Minister Benjamin Netanyahu has recently proposed several laws that would ease restrictions on Israeli real-estate investments.
The legislation would also allow foreign companies to invest in real estate projects that are exempt from the restrictions on real estate transactions in Israel.
According the Financial Report, the government has been cracking down on real-property deals that do not comply with Israeli law, including an ordinance passed last month that would allow Israeli realtor firms to bypass existing laws that prohibit transactions involving real estate contracts with individuals or entities in the Middle East.
“Investment in Israeli real estates and property can be risky, especially if they are not well managed,” the authors of the Financial NYT report wrote.
The report highlighted the recent financial problems facing Israel’s real estate sector.
The Financial Times also warned that Israel is facing a severe shortage of land in the country.
“As the economy deteriorates, the real- estate market in Israel is in a precarious position,” the publication wrote.
“The lack of suitable land to construct new residential buildings and the lack of an appropriate tax base means that there is an increasing need for developers to take risks to attract foreign investment to the country.”
The article cited a study by a real estate company that estimates that only one in 10 of Israel’s total housing is built on privately owned land.
“Real estate development is a significant challenge to the state’s ability to maintain the current demographic dividend,” the researchers said.
“With the rapid growth of housing demand, the state has little time to accommodate the growth of the population.”