“Housing prices will not fall because the banks will collapse. Prices will rise and with them our profit”

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“The state has no risk if it allows us a state guarantee. It will not cost it anything but it will give a real solution and not like a price per occupant that is estimated to rise between 7 and 20 billion shekels and gave a solution only to a small group of people. The only risk is if housing prices “They will fall by 20% -30% and it will not happen, because if it does, the banks and the state will collapse. .

The Harit Residential Foundation







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Recorded a profit of NIS 122 million in the third quarter of the year (compared to a profit of only NIS 1.1 million in the corresponding quarter), even though the company recorded revenues of NIS 23 million in the quarter. In any regular company, the income is the top line and from there all the expenses are derived so that the profit is always smaller. So how does Magorit’s profit far outweigh its revenue? The answer is the jump in housing prices.

Magorit, and

Reit Levy areas

Reit Levy areas






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, The newer, are housing investment funds. For simplicity: instead of buying an apartment, as 70% of Israeli citizens do, you can invest in the housing market by investing in REIT funds. the chance? If prices go up, so will profits. The risk? If prices fall – the fund will snatch strong.

Prices have risen by 10% in the past year, so the revaluation of the fund’s assets has increased from NIS 3.5 billion to NIS 4.1 billion, respectively. Although this is a profit on paper, which investors see only in the value of the company’s assets, and will not receive as a dividend, but since this is not a residential apartment but an investment in the fund – it is considered a profit.

Is this a real profit?
Rosenbuch: “Our business is to buy apartments and rent them out. So we benefit from both rising housing prices and rents. When housing prices skyrocket like last year then rents are the small part. But it’s a completely real profit. It’s called real estate revaluation but Provident funds and study funds also revalue every month even without selling the assets and this is considered a real profit for them. So what’s the difference? ”

So this is a fixed profit and not a one-time revaluation?
Rosenbuch: “I do not know if it is one-time. What is happening in the last year is a 10% increase in housing prices. If housing prices continue to rise at the same rate next year then double the numbers and a profit of NIS 410 million will come out, which will eventually roll to the bottom line. So yes it can be repeated next year as well, the main variable is housing prices, but I can also say that even if housing prices do not rise by one shekel next year we will recognize revaluation gains of NIS 300 million – accounting rules forbid us to recognize this profit now But only when we actually receive the apartments. ”

It should be emphasized that this is not a profit distributed to investors, but a profit from the increase in property prices, which will appear in the company’s balance sheet. At the same time, the fund is obligated to distribute a dividend of 90% of the taxable income (a kind of profit before tax in an ordinary company, in which the fund is largely rental income less all current expenses). Magorit has not yet reached the threshold where it will start dividing this profit as a dividend. Rosenbuch estimates that this will happen in 2022 and also that in the coming years the annual rental income will reach NIS 115 million a year. However, it is currently difficult to estimate how much of this will go to the same line of taxable income.

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Your risk goes along with the market – prices will go up, you will win, prices will go down, will you fall?
Rosenbuch: “True, but I do not see a drop in prices. By how much do you think housing prices will go up next year?”

Finance Minister Lieberman says a price increase of ‘only’ 5% -6% next year will be an achievement
Rosenbuch: “Let’s take Lieberman as a benchmark. If prices rise by 5% -6% a year, for us it is a profit of NIS 200-250 million a year. That is at least NIS 50 million a quarter. But I will tell you more than that – when you look at Israel In time periods of 20 years you see consistently since the establishment of the state an increase of 3% per year (according to theOCED The numbers are indeed close to that and rise in real terms by an average of 2.7% each year. “So if we take only these 3% each year, it is a profit of NIS 120 million a year, so to your question – this is not a one-time profit.”

If housing prices do fall you are not leveraged more than others?
Rosenbuch: “Absolutely not. Our leverage is 63%, and in real estate companies it is 70% -80%. And the state in general encourages REIT funds to reach 80% leverage. “Our bonds are traded at an interest rate of between minus half and plus 0.3%, so no one thinks the leverage is too high.”

“We are less risky than a private person who takes out a mortgage to invest in an apartment. He pays the bank interest on the 3% mortgage and our bond is as I said in the zero zone. We are spread over 1,700 apartments in 30 projects, while one apartment is one apartment and there is no dispersal. ”

What are the benefits of the Reit Foundation?
Rosenbuch: “The state wants to encourage the opening of REIT funds. Instead of buying an apartment, it wants to encourage investment in long-term rent, so not every day the landlord can take you out of the house, and even without a draconian contract that animals are not allowed in or evacuated within three days. For this she gave benefits to REIT funds: 1. Purchase tax of only 0.5%, compared to 5% which is going to increase to 8% 2. Exemption for REIT funds from income tax on an apartment (unlike an ordinary person who pays tax on rental income of more than 5000 NIS per month), 3. Exemption from praise tax.

“A private investor in a residential REIT fund (unlike other REIT funds) will pay a lower tax of 20%, instead of a marginal profit tax that can also be 35-40%. The provident funds that invest in us are tax-exempt on dividends. The state has come a long way to REIT funds to encourage The institutional and the public to invest in apartments as an alternative to direct housing.

“When you invest 600-700 thousand in an apartment you are talking about an unregulated market. Unfair terms. Short-term agreements, poor maintenance of the apartments and more and here we are talking about a regulated market that the state supervises.”

The other companies in the market are not copying you?
Rosenbuch: “We took a different strategy from everyone when we bought apartments two or four years ago. We bought apartments at a land price of NIS 300,000, when today in Lod, for example, the price of land alone is NIS 900,000 to NIS 1.1 million per apartment. Add all the costs and understand that the contractors In the span of 5 years, prices are NIS 2.7 million per apartment. And in Netanya – not Tel Aviv – it is NIS 3.8 million per apartment. Only Azorim moved us in and moved in a few years later.

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“Now everyone is copying us. Ashtrom, Mivna, Praszkowski, everyone is fighting for the land. Shikun VeBinui, Hanan Moore, Gazit Globe are entering aggressively, but we bought most of the apartments in 2017-2020 before the 10% jump in prices this year and everyone buys after the increases.” .

“And more than that – since we bought a lot of apartments together (at least 20 apartments in the project and Magorit’s largest collection was the purchase of 133 apartments in Yad Eliyahu, Tel Aviv, Magindi, and 99 apartments in Jaffa from Manrav. NA) we bought the apartments in those days. -10% -12% discount on the market price at the same time. Today no one gets such discounts anymore. Today we talk to everyone about a 5% -6% discount.

Housing Minister Zeev Elkin is trying to warn developers and tell them, guys, be careful – do not get stuck with apartments. According to market sources, this is about NIS 1 million for the construction of an apartment, including costs such as aluminum for walls, elevators, sprinklers and more. When the entrepreneurs want at least an entrepreneurial profit of 20%, and those who present less than 15% to the bank will not receive bank support. In fact, Rosenbuch’s words mean that developers in the market expect a 30% -50% increase in housing prices over the next 5 years, and it is understandable what Elkin is afraid of anyway.

If it’s such easy money, why not raise a lot more REIT funds? The U.S. has hundreds of REIT funds, if not more
Rosenbuch: “There are hundreds of American REIT funds that manage $ 30 billion and more. In Israel there are 2.7 million apartments, of which 800-700 thousand apartments for rent. We bought 1700, which is a bit of a sea. Even if there are a lot of competitors That no competitors enter.

“But there are high barriers to entry: it is difficult to enter because there are threshold conditions for establishing a Reit fund – you have to raise at least NIS 200 million, not to have control and also to trade on the stock exchange. And it still does not work. ”

Why are investors losing out on your stock?
Rosenbuch: “I have no answer. I can only compare us to a reit of areas only that we are attacked and everyone is paralyzing them. They are 3 years behind us, and we have 4 times their own income. But they are trading 60% above the issue price. And we are minus 22% “The only difference is in the media coverage.”

Management Fee
The Achilles heel of REIT funds is in management fees. The fund trades at a capital multiplier of 0.86 (equity market capitalization equals 0.86) there are good reasons for this. First and foremost – the management fee. Initially, the management company charged a management fee of 1% and this improved to 0.7% after an audit of institutional bodies. 1% down to 0.7% it may not be terrible when everything is ticking like clockwork: when all the properties are rented out, there is a return of 4% -5% in rent, there is improvement as a result of an increase in value and a low cost purchase.

But the fund does not get into this situation, it is constantly in pursuit of acquisitions, projects, it is constantly raising, so the investor does not actually get what he wanted – investing in an apartment, he actually receives part of his investment directed to the apartment, another large part to the apartment under construction. Management fees and the yield it produces are low. Beyond that, it is about management fees from the company’s assets, and not about equity. The company actually raises money in shares and on top of that leverages even more and thus increases the volume of its assets – as a result of this single percentage collected from the assets is equivalent to 2.8% of the capital.

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Management fees not too high?
Rosenbuch: “They decrease as the balance sheet size increases. There is a formula that says that until asset management of two billion shekels the management fee stands at 0.7%. In the third billion it drops to 0.6% (and here we are now) and in the fourth it drops to 0.55% And of the fifth billion the management fee is 0.5%.

Let’s talk about your application for a state guarantee for the funds?
Rosenbuch: “I have been working with the Ministry of Finance for two years and ask the state to guarantee the funds. On the one hand I buy apartments and on the other hand I have to finance them. If the state gives us a guarantee it will reduce our funding, In any case, I can give more young people a discount on a rented apartment. ”

What does that mean?
Rosenbuch: “We came to the Ministry of Finance and said that against the guarantee we undertake to rent 25% of the apartments at a 20% discount. The appraiser of the government company to rent an apartment will determine how much they are 20% You will choose. ”

“We are ready as a private sector to make apartments in strong demand areas accessible at a 20% discount, in our opinion without risk.”

Where does it stand now?
“There was a discussion in the Finance Committee and so we persuaded them and they told the Ministry of Finance to examine, who said he would ‘examine positively.’ Legislation and they can take care of the issue without legislation.

“I very much hope it succeeds. In the end it is in line for the weakest public, who can rent long-term apartments for 5 years with a supervised price, with an option to extend the lease for another 5 years.”

And what about the price per occupant, who failed miserably?
Rosenbuch: “The state must help. The price per occupant cost the taxpayer NIS 7-20 billion. Each of us actually put our hand in our pocket and subsidized this story so that some people get an apartment at a reduced price. The state guarantee in our case does not cost the state a shekel – with zero risk “.

And what about the risk?
“The state has no risk in this guarantee. We buy a building for NIS 1 million and take 800,000 from the capital market. The state will only be at risk if housing prices fall by 20%, and the truth is that only if they fall by more than 25% because we bought the apartments at a 10% discount “More and more, and no one thinks that housing prices will fall by 20-30% – because, as I said, the banks will collapse.”

A word to end?
“If Magorit or other areas or REIT funds make a profit, those who make a profit are the shareholders. It’s the companies that manage the public’s money. It’s the Phoenix, Menorah and Clal who are interested in us, it’s Altshuler, Moore, etc. If we make more the public will make more – We have no controlling shareholder and it must not be according to law. ”


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