Bank of Israel: Long-Term Investments, Stocks Beat Real Estate

Construction work on new homes outside Afula. Photo by Nati Shohat/Flash90)

How hot is the Israeli real estate market? Hot enough that investments in Israeli real estate beat investments in the Tel Aviv Stock Exchange over the last several years. That’s a shift from the situation that prevailed previously, in which stock investments beat real estate investments.

According to figures from the Bank of Israel, investments in stocks over the full period of the last 30 years paid better than real estate investments during that period. Between 1988 and 2017, the net annualized profit for stock investments over the past three decades in the Tel Aviv 125 Index, which represents the country’s largest companies, was 6.06 percent averaged over a ten-year period. For real estate investments, that figure was 4.87 percent. Stocks also beat government bonds, which, according to the formula, rose in value between 2.66 percent and 3.48 percent annually.

With that, the latest round of real-estate price increases has given the stock market a run for its profit money. Figures show that since 2008, the rate of increase in real-estate investments has been higher than the increase in stock prices. Part of the reason, the Bank said, was because of higher capital gains taxes and the relative increase in rents, which many investors in real estate benefited from.

With that, the Bank said, long-term investors should take heed: Over longer terms, the real estate market is no match for the stock market. Investors should also take into account the other “dangers” of real-estate investments, including maintenance costs, potential difficulties in selling an apartment, commissions for sale and purchase, and other factors that are not factors in the stock or bond markets.

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