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Zionism Investment: Real or Speculative

Published: January 17th 2011
in Economics » Israel

This photograph is of 1909 auction of the first lots of Tel Aviv.

My great-grandfather's decision


My great-grandfather was born in Istanbul in 1869. In those days, the Turkish Empire was ruling many parts of the Middle East, including Israel of today. As a Jew and as a businessman, he decided to check if there are any opportunities in the Holy Land and at the beginning of the 20th Century, around 1904, he and his friend sailed on a ship to the port of Jaffa.


They checked various options such as trading with the local merchants or importing goods and then re-exporting them to central Europe. They also checked some real estate options and were taken by a "land trader" to the sand dunes north of Jaffa.


My great-grandfather saw nothing but sand and dessert all around him. He did not want to spend even a penny of his money and was sure that the land trader was nothing but a thief that would sell him dry sand and empty dreams, give him a worthless piece of paper and walk away with his money. He decided not to buy.


His friend thought the opposite; he was not a businessman but a Zionist who believed that buying land in the Holy Land is a must and one day Jews will be able to settle on that land and re-establish their sovereignty on their ancient soil.


Tel-Aviv is born


In 1909, about five years after my great-grandfather said no to the deal, a Jewish settlement was put to the ground. It was later known as Tel-Aviv, the first Hebrew city. Today, over one hundred years after it was established, Tel-Aviv is the biggest metropolitan in Israel; and is ranked one of the best cities in the world.


The sand dunes have turned into skyscrapers, cinemas, malls, restaurants, beaches, art museums, wide boulevards, flourishing gardens and one of the best universities in the world. My great-grandfather's friend bought land which is about 11,000 square feet and he paid pennies. Today, if you wish to buy a 900 square foot apartment in downtown Tel-Aviv you will probably have to pay a minimum of USD $300,000.


Israel's real estate


The real estate prices in Israel rose by 52 per cent since 2007. The issue is a hot topic for Israelis who discuss it frequently in the barber shops, around the water coolers and in the news. The on-going debate now is whether the current prices are a "bubble", with the results being much like the U.S. markets in 2008, or sustainable. According to most analysts, the prices are real and will continue to grow due to the almost eight million people who live in 20,451 square km. Many compare Tel-AvivI to Hong-Kong and Singapore, hence the reason why the prices are so high.


The opportunities


David Ben-Gurion, Israel's first prime minister had a vision. He wanted to populate the Negev, Israel's southern dessert, and believed that the future of Israel is there. Today many believe that the Galilee is the same. It is relatively remote from the central part of the country and not highly populated.


Young couples and families are facing a serious dilemma these days; they would rather stay in the Tel-Aviv area, close to their families and to their work places, but the prices are beyond reach, especially when thinking of extending the family.


They see attractive deals in remote areas which the government has tried to incentivize by building new highways to shorten the time of getting to and from work.


We can clearly see a population movement to the peripheral parts of Israel. That movement has created a secondary real estate boom and in some Israeli towns prices have tripled in only five years.


What to do


Buying land in Israel for ideological reasons is always good and blessed. There are many options in this matter with which the Jewish National Fund (JNF) can assist you with.


Beyond the ideological reasons though, investing in Israeli real estate can be a very lucrative opportunity, especially in remote areas. If you decide to rent your property, your annual yield may be 8-11 per cent. If you’re thinking of buying now and holding for the future, it's a question of research and some luck. Just be sure that you’re comfortable investing in a foreign land, as these opportunities always come with their own issues and surprises.


Personally, I believe that there are many opportunities out there but also many risks. Whatever your decision is, I hope the results will be like my great-grandfather's friend.


This article does not recommend investing in real estate in Israel

Related articles: (Real Estate, Tel Aviv, Jaffa, Market)
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