In our previous articles, we discussed why you should invest in Israel. There are many reason for investing in Israel, among them currency diversification, geographical diversification, and the desire to support the Land and people of Israel. Other reasons include participating in the prosperity Israel is experiencing since its rebirth, and enjoying the fruit of a strong and robust economy that weathers the sometimes-stormy global financial climate.

So how can this be accomplished practically? There are three main ways to invest in Israel financially:

1. Investing in Israel’s capital market via Israeli stocks, bonds and mutual funds. This is done by opening an investment account with one of the established Israeli brokerage firms that are members of the Tel Aviv Stock Exchange (TASE). Accounts may be opened remotely through the mail and can be overseen through a secure English online portal, just like a bank account. Citizens of all countries may invest in an Israeli brokerage account as individuals (single or joint), as an organization (for-profit and non-profit) and through U.S. retirement funds with a minimum entry limit of 20,000 Israeli Shekels (approximately $5,000 USD). Some additional information to know about investing in the Israeli capital market:
   1. The TASE provides a wide array of asset types (securities), ranging from Israeli stocks offering dividend payments, to secure Israeli government bonds, through inflation-protected corporate bonds paying fixed quarterly interest payments, to ETFs tracking market indices. These assets are spread over all the major business sectors offered in other markets around the world, including: technology, real estate, industry and manufacturing, communication, biomedical, agrotechnology, insurance, finance and banking, commerce and services etc. Of particular interest is the new oil/gas exploration sector, given Israel’s recent large-scale discoveries of these commodities, and of course the world-renown Israeli high tech sector that has supplied the world with many groundbreaking technologies.
   2. Individual stock and bonds capital gains, as well as bond interest payments, are not taxed in Israel for non-Israeli investors. The Israeli capital market has shown impressive returns over recent years:
      During the economic recovery year of 2009, the Tel Aviv 35 stock index returned 75% to investors, vs. the S&P 500 yield of 24%. Israel’s stock market has outperformed other developed markets by far since the year 2000 showing 184% total return for the Tel Aviv 35 compared to 63% total return for the S&P 500 (as of May 16, 2017). On the bond side, Israeli corporate bonds have yields over 6% average annual return with relatively low volatility since 2009.

2. Investing in Israeli Start-Up companies. This is done by purchasing equity in early stage start-ups as an angel investor or through a venture capital firm that is connected with various private companies and raise capital for them through a VC fund. Some additional information to know about investing in Israeli start-up companies:
   1. Investing as an angel investor or through a VC requires a relatively large investment principle, typically ranging between $150,000 to $2,000,000 USD but typically represents no more than 10% of the investors total investment portfolio. VC investing is usually done by “Accredited Investors”: individuals with a net worth of at least $1,000,000, excluding the value of the investor’s primary residence, or demonstrate an annual income of $200,000 or $300,000 for joint income for the last two years with the expectation for the same or higher income in the future.
   2. Since seed investments in start-ups and VC funds are of a much higher risk nature, investors should be prepared and able to potentially lose all of the principle investment. Start-ups have a success rate of 1 in 10, meaning that there is 90% chance that the start-up will fail and the principle will be lost. For this reason investors usually invest in dozens of start-ups simultaneously with the hopes that one of them will success and provide a good ROI (return on investment) to cover the losses gained from the other failed investments.
3. Investing in Israeli Real Estate. This can be done in two ways: first, by directly purchasing physical real estate such as an apartment, house, building, office etc. Second, by purchasing stocks and/or bonds of real estate companies or Real Estate Investment Trusts (REITs) on the Tel Aviv Stock Exchange. This second method is less direct, i.e. you do not actually own the property but do enjoy the dividends and cashflow from the companies that build, sell and rent out the real estate. These dividends are legally tied to over 90% of the profits of the REIT. Some additional information to know about investing in Israeli real estate:
   1. The Israeli real estate market has seen good growth in since 2007 with prices of many assets rising close to and even over 100% since then, giving an approximate annual return of 7% (varying, significantly even, from asset to asset). Since the end of 2016 the rise in house prices has slowed significantly, with recent data indicating a very possible change in trend to housing prices as they begin to drop, though it is still too early to tell. There is a certain level of uncertainty currently in the real estate market, however some analysts are already determining that investors are beginning to sell their real estate assets.
   2. Investing in REITs and real estate companies put somewhat of a hedge between the investor and the assets, for the better. On the one hand it employs the REIT management and real estate company’s expertise in the market, eliminating the need to for the client to make those decisions and spend all that effort themselves. On the other hand, it is easy for the client to control their level on investment in the real estate market by purchasing or selling more stocks or bonds with the click of a button, without the need for finding a buyer for their physical property and not having to deal with the bureaucracy, taxation, legal work, fees etc. that go with selling (and purchasing) actual property. These advantages allows the investor to change weighting in their portfolio to other market sectors and asset classes swiftly and with minimal hassle, time and money consumption. This flexibility can be key in turbulent market times.

Investing in Israel is a great way to diversify your portfolio, support the Israeli economy and participate in the success of the nation. Before you decide how to do that, you should consider the information above and how that applies to your specific personal and financial situation.

Stefan Silver serves as the Director of Business Development & Operations at Wise Money Israel (WMI), the first licensed Investment Portfolio Management firm in Israel that works completely in English to serve local and international clients. WMI works with hundreds of individuals and organizations from around the globe to invest in Israel’s leading companies and technologies through Israel’s capital market – the Tel Aviv Stock Exchange (TASE).

Stefan holds a B.A.in Economics and Management, and an MBA from Haifa University. Born in Auckland, New Zealand, Stefan immigrated to Israel in 1992 and served for four years in the IDF’s Combat Engineering Corp, including combat experience on the front lines of the Second Lebanon war. He is currently a Captain in the IDF Reserves.

LinkedIn: Stefan Silver

Sources:
Forbes, Investopedia

The post Israel Investment Possibilities Explained appeared first on Wise Money Israel.

When author Mark Twain visited the Land of Israel (then still called Palestine) in 1867, he penned impressions of what he witnessed in his book “Innocents Abroad”:

“A desolation is here that not even imagination can grace with the pomp of life and action. We reached Tabor safely. We never saw a human being on the whole route.  There is not a solitary village throughout its whole extent – not for thirty miles in either direction. ...One may ride ten miles hereabouts and not see ten human beings. ...these unpeopled deserts, these rusty mounds of barrenness...”[i]

In conclusion Twain claimed that “Palestine sits in sackcloth and ashes.... desolate and unlovely...”[ii]

Others described the land as “desolate and roamed through by Arab bands of robbers”[iii], “nothing but houses in ruins, cisterns rendered useless, and fields abandoned”[iv] and even late in the 19^th century a French traveler wrote that Haifa “can be crossed in five minutes”[v].

The picture is clear: a mere 100 years ago, the Land of Israel was desolate of people and of buildings, and villages that did exist were comprised of small, rural shacks. That is certainly not the scene that travelers arriving in Israel today first lay eyes upon.

“Though you were ruined and made desolate and your land laid waste, now you will be too small for your people, and those who devoured you will be far away. The children born during your bereavement will yet say in your hearing, ‘This place is too small for us; give us more space to live in.” - Isaiah 49:19-20

Construction in modern day Israel is booming, with apartment buildings, malls, hotels, highways, interchanges and high-rises springing up all over the country, like mushrooms after the rain. Today, Israel boasts over 750 skyscrapers that are 20 floors high or more – hardly a desolate wasteland with barely a village for “thirty miles in each direction” Israel is now a thriving and developed nation, constantly growing and building at an exceptional rate.

Especially notable is Israel’s largest city of Tel Aviv, where dozens of new corporate office buildings and luxury apartment buildings can be seen rising from the Ayalon freeway as it curves through the city. Major construction can also be seen in Kfar Saba, Kiryat Gat, Herzilya, Hadera and Rosh HaAyin with each city’s construction growth rate rising considerably compared to the same quarter last year by 309%, 260%, 114%, 109% and 100& respectively[vi]. The rise in construction is also reflected in Israel’s House Price Index which hit an all-time high in May of this year, up 114% in the past 10 years.[vii]. Israeli real estate prices even continued to rise during the 2008 global financial crisis, with no sub-prime or mortgage-backed securities setbacks.

Israeli real estate is seen by many as a solid and long term investment. However, purchasing real estate here requires a large amount of initial capital, comes with high entry and exit high fees (lawyers, bank fees, agents, taxes, etc.) and the investor must endure a hefty amount of bureaucracy. Property management from abroad is difficult, and unfortunately there aren’t companies here that offer that service to individual investors. Another disadvantage is the illiquidity of the funds used to purchase the real estate, and in times of need are difficult to obtain speedily without suffering significant losses.

That being said, there is a very practical way for investors to gain exposure in their global portfolios to Israel’s real estate market, and at the same time bypass the disadvantages that come with purchasing actual real estate. This is accomplished through purchasing real estate stocks and bonds in Israel’s financial market. The $5,000 investment brokerage account minimum allow the small and mid-size investor to have income-generating Israeli real estate in their portfolios that generate regular dividends.

There are several different options for purchasing real estate stocks or bonds on the Tel Aviv Stock Exchange:

1. A REIT – Real Estate Investment Trust – buys, develops, manages and sells rental real estate assets and real estate loans (mortgages).  Its professionals manage a portfolio of real estate properties that generally include commercial rental properties (such as shopping centres, office buildings, hotels, industrial buildings, etc.) that return rental income for shareholders, typically through large dividends and long-term capital appreciation. This type of specialized company offers shareholders ownership of real estate through the purchase of stock. Investing in a REIT stock versus the direct purchase of real estate has become a popular way for individual and institutional investors (pension funds, mutual funds and insurance companies) to easily gain exposure to the real estate market. REITs have been operating in the United States for small to medium investors since the 1960s, and together are worth hundreds of billions of dollars.There is are a number of publicly-traded REIT investments on the Tel Aviv Stock Exchange. ”REIT 1” operates as a real estate investment trust with a property portfolio that includes office buildings, commercial spaces, and industrial properties. REIT 1’s stock price has risen by over 180% during the past five years and currently holds an impressive market capitalization of 1.88 billion NIS (approx. $500 million USD)[viii]. REIT 1 is purchasable either through direct stocks or corporate bonds. Sela Capital, another Israeli REIT, has returned 25% to investors in the past 12 months. Another REIT, focusing on residential real estate, had an IPO this month.
2. Stocks and bonds of individual construction companies and/or indexes that track the Israel real estate sector. For example the Tel Aviv Real Estate 15 index includes stock in the largest 15 real estate companies, including the Azrieli Group, Alony Hetz Properties & Investments, Airport City, Africa Israel Properties and Shikun & Binui. The index has risen 18% YTD and has gained approximately 90% over the past five years[ix].

It is amazing to see how Israel has transformed from a desolate, desert, swamp land into the established built-up land that it is today. It is nothing short of a miracle. According to the Scriptures, looking ahead we can foresee that this modern-day, “nation born in a day” miracle will continue to grow and thrive. If you desire to take part in building up the Land of Israel, literally, by investing in Israeli real estate, you now know that there is a simple and accessible way to own Israeli land and real estate without the hassles of purchasing it yourself.

Stefan Silver serves as the Director of Business Development & Operations at Wise Money Israel (WMI), the first licensed Investment Portfolio Management firm in Israel that works completely in English to serve local and international clients. WMI works with hundreds of individuals and organizations from around the globe to invest in Israel’s leading companies and technologies through Israel’s capital market – the Tel Aviv Stock Exchange (TASE).

Stefan holds a B.A.in Economics and Management, and an MBA from Haifa University. Born in Auckland, New Zealand, Stefan immigrated to Israel in 1992 and served for four years in the IDF’s Combat Engineering Corp, including combat experience on the front lines of the Second Lebanon war. He is currently a Captain in the IDF Reserves.

LinkedIn: Stefan Silver

[i] Mark Twain, The Innocents Abroad

[ii] Ibid

[iii] Brockhaus, Alig. deutsch Real-Encyklopaedie, 7th ed. (Leipzig, 1827), Vol. VIII, p. 206

[iv] Count Constantine F. Volney, Travels Through Syria and Egypt in the Years 1783, 1784, 1785 (London, 1788), Vol. 2, p. 147

[v] Brother Lievin de Hamme, Guide indicateur, Vol. Ill, pp. 163, 190

[vi] Globes

[vii] Israel Central Bureau of Statistics

[viii] Tel Aviv Stock Exchange

[ix] Ibid

The post Building a Nation: Israel’s Booming Real Estate Market appeared first on Wise Money Israel.