Real estate investment can be lucrative, but just like with any other investment, there are risks. Those risks can be even greater when Israelis choose to invest in foreign real estate, particularly if they are unaware of local laws and other regulations that may impact their investment.
For example, Israelis have been investing in real estate in the United States in record numbers over the last decade. Many are aware of the income tax implications of these investments, but they often overlook or are unaware of estate tax implications.
While most U.S. citizens will not pay estate tax (there’s an $11.2 million exemption for citizens), non-citizens may pay dearly in estate taxes. With foreigners, the transfer of the property is taxed, the exemption is just $60,000. You might find a modest condo in Myrtle Beach, SC or Clearwater, FL, but if you buy real estate in just about any other part of the country, you’re sure to spend well over $60,000 on your investment.
Estate tax rates in the United States start at 26%, and they jump to the 40% rate once you hit the $1-millon mark.
To overcome the complications and risks of direct purchase of foreign real estate, some Israelis are taking a different route – one that may be a profitable alternative. Instead of going the traditional route, investments are made through an Israeli group that purchases and develops properties overseas on a scale that can read hundreds of millions of shekels.
This sounds all well and good – and it works out well for many investors – but there’s one problem: these types of investments are not regulated by the Israel Securities Authority. Even if the intentions are good, Israeli investors are still at much higher risk.
The tax implications of owning multiple properties in Israel is one of the main driving forces of foreign investment. And foreign markets may offer advantages that Israel’s housing market – as lucrative as it may – may not offer.
In the U.S., for example, property values continue to rise, and foreclosed homes offer more affordable investment opportunities in hot markets. Sure, there’s high demand from other foreign investors, but the market is massive.
But again, you still have to deal with tax implications when making a foreign investment.
In Greece, real estate prices have dropped 40% over the last decade due to an economic crisis. The cost of an apartment in the center of Athens is about the third of a cost of an apartment in Tel Aviv. Israeli investors are not deterred by the country’s economy, as tourism is still thriving. In fact, tourism accounted for nearly a fourth of the country’s GDP in 2017, according to the World Travel & Tourism Council.
And for adventurous Israelis, a real estate investment of at least 250,000 euros in Greece can get you residency in the country.
While many entrepreneurial Israelis are seeing success with their Greek real estate investments, others warn of the risks. The country has a high unemployment rate, growing public debt and frayed relations with Europe.
There are risks with any real estate investment, but foreign investment is an even greater risk.