2024-01-16 11:03:20
The article is in collaboration with Harel Finance
Alternative investments in the real estate sector in Israel are expected to grow significantly in the coming years and we are now at an optimal entry point into the field, according to the investment house Harel Finance. These days the alternative products company of the investment house, Harel Alternative, is launching a new investment fund called “Magan Israel”, which will invest Alongside Harel Insurance, in the financing of construction projects using the closed escort method in the construction sector in Israel. The credit will be offered to leading entrepreneurs with rich experience in the real estate industry, a positive credit history and proven financial strength.
The investment house explains that debt funds for investment in real estate are one of the fastest growing areas in the world of non-tradable investments in recent years and Harel has alternative debt funds for investment in real estate in the US and Europe that continue to grow and raise funds. These funds provide investors with protection against the great volatility that characterizes the financial markets and the tradable investments. Now, and for the first time alongside Harel Insurance, Harel Alternative investors will be able to enjoy the benefits of providing credit for real estate projects also in the Israeli market through Magen Israel.
The investment in the Magen Israel Fund was designed to allow investors to profit from the sharp increase in property prices in recent years that was not accompanied by a corresponding increase in rental prices, and therefore reduced the potential returns from direct investment in properties, Harel Alternative notes and adds that in credit transactions for real estate projects it is often possible to receive high returns compared to returns on maturity of bonds of public companies whose activity and rating are similar, especially in light of the expectation of interest rate drops in the coming year. They also say there that for over a decade Harel Insurance has developed a practice of specializing in providing non-marketable credit, among other things due to the strict regulatory restrictions imposed on the banks in regards to freezing capital and sectoral restrictions which have largely created a credit crunch in the industry.
Neta Yaffe David, CEO of Harel Alternative / Photo: Harel Finance
The war in Gaza caught the real estate industry in Israel at one of the lowest points of the last decades. The increase in inflation in recent years together with the high interest rates made it difficult for developers and potential buyers and increased their financing costs. The Israel Land Authority failed and the number of construction starts decreased. “Iron Swords” worsened the situation and for a certain period even completely shut down the local real estate industry, whose great importance to the Israeli economy is obvious to everyone.
For the Harel Group website, click here>>
However, Harel Alternative points out that history shows that the recovery of the Israeli real estate market from crises is very fast, therefore they believe that in 2024 there may be a change in the sector thanks to at least four factors:
Large investments are expected due to demand for construction financing and the purchase of apartments with MMD
Of course, the war had a negative effect on the demand in the surrounding areas and the towns close to the northern border, but it increased the demand for apartments in the Sharon area, Netanya, Hadera and the surrounding area, because these areas are considered “quiet” and there were almost no alarms. In addition, the war emphasized the importance of having an air conditioner in the apartment. Data show that 62% of apartments in Israel do not have an air conditioner, as of 2023. The demand for apartments with MMD is expected to increase following the war.
Even regardless of the war, the rate of construction of new apartments in Israel is lagging behind. As of the end of 2023, the rate of construction of new apartments in Israel amounts to less than 50 thousand units, while according to the rate of population growth there is a need to build more than 60 thousand units per year. With the exception of 2022, when there was a jump in the rate of construction starts, the last few years were characterized by a lower construction volume than necessary.
The lack of practitioners will accelerate price increases in the industry
The low supply of apartments is an issue that is getting worse due to the stagnation in the industry during the war – first due to the fact that the real estate industry (like most of the economy) was almost completely shut down and later due to the ban on the entry of workers from Gaza and Judea and Samaria. The real estate industry employs over 120 thousand Workers, about 80 thousand of them Palestinians. Today the industry relies on workers from China and Moldova (about 40 thousand), but it operates very partially. To speed up the activity, additional workers are required.
After the government rejected at this stage the approval for the return of workers from the territories, the industry is now waiting for workers from other countries such as India. The slower the pace of construction remains, the sharper the price increases down the road may be.
Photo: PEXELS
The increase in the rate of population growth requires apartments more
The rate of population growth in Israel is high in international comparison. Not only the natural increase affects the demand for housing – but a series of variables derived from it, starting from a wedding (demand for a new apartment) to divorce (demand for an additional apartment for a family unit), the rate of which in Israel in 2023 is 47.3%, according to the CBS. In addition, It must be taken into account that as a result of the war there are over 100 thousand evacuees, some of them will look for new housing solutions outside the areas where they have lived until today.
Moreover, the war in Gaza that led to a wave of anti-Semitism around the world is expected to increase the waves of immigration to Israel already in the coming year. The Jewish Agency and the Ministry of Immigration and Absorption have already reported a certain increase in applications for immigration, which will further increase the demand for housing.
Falling interest rates are good for investors
On the first day of 2024, the Bank of Israel announced the first interest rate cut, after the interest rate had risen sharply in the past two years. The drop in interest rates is expected to continue during the coming year, along with the expectation of a drop in interest rates in the US as well. A drop in interest rates contributes on the one hand to a reduction in the financing costs of contractors and makes it easier for them to advance the construction of stalled projects, and on the other hand helps consumers to finance the purchase of an apartment, adding MMD and investments more in the housing sector.
In the bottom line, Harel Finance concludes that in their estimation during 2024 the residential real estate industry is expected to recover. One of the interesting ways to be exposed to the industry is to invest in it by providing credit for various projects in new construction, urban renewal, building clearance and other projects – with leading entrepreneurs in the field, who have experience It is proven that they are expected to benefit from the strengthening of the industry and the expected increase in demand. So far, classified investors have not been given the opportunity to invest alongside the Harel Group in projects of this type. The new fund “Magan Israel”, which was launched in early 2024, will provide a responsible investment alternative and allow investors to enjoy the benefits of investing alongside an experienced body that invests itself in every transaction And it has an identity of interests, a flow of transactions in the pipeline, the ability to filter and underwrite strict and credit management and close monitoring, the investment house points out in conclusion.
For the Harel Group website, click here>>
*Investment in the fund is intended for classified investors, in accordance with the exemption set forth in the Securities Law, 1968. Investment in the fund entails opportunities, as well as risks in connection with the investment funds. The investor must carefully review all documents relevant to his investment, and consult with his professional advisors as much as possible Required before investing. This does not mean investment advice. This does not mean a guarantee of return.
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