For the sake of the future of Israel’s economy, don’t chase away the overseas investors

Please Mr. Kachlon…For the sake of the future of Israel’s economy, don’t chase away the overseas investors.

Like the majority of small countries, the economy of Israel is heavily reliant on foreign investments. Even before the State was officially declared, overseas investors and philanthropists financially supported the country. Since 2008 overseas investments have risen by more than 300% as investors see Israel as a young, vibrant, stable yet growing economy.

In his desperation to show that he is actively trying to reduce housing prices, Israel’s Finance Minister Mr Kachlon has openly stated that he no longer wants active foreign buyers in Israel’s property market and has taken steps to achieve this. This is a mistake that Israel will live to regret.

Out of the 105,000 properties purchased a year, less that 3% are by foreign buyers. They usually purchase in specific towns and neighborhoods. These 3% cannot affect the prices of 97% and the price of an apartment in Jerusalem’s neighborhood of Talbieh has no influence on the prices in Shikun Gimmel in Beer  Sheva. The mere claim is ridiculous. They do, however provide a fitting scapegoat for politicians who are failing at the jobs.

The negative ripple effect is, however, huge. These overseas buyers not only visit Israel regularly by virtue of owning property, they spend sizable funds which infiltrate the heart of the local and national economy and become active in businesses and philanthropy.

However, this is only a small portion of the damage. Of the 30,000 new units built in Israel per year, over 10,000 are built using the initial equity of foreign investors. These are people who bought their first apartment 15 years ago, realized that Israel is not a complex place to invest in, and slowly built up small property portfolios. Eventually they moved up to small building projects and ultimately progressed to building high-risers and office blocks. They are now invested not only in notorious “ghost” neighborhoods, but are active investors in every angle of the property market.

So when we chase away the foreign investors, we might save 1,000 apartments today for the possible gain of the local buyer. At the same time, we lose tens of thousands of units for the next generation.

Mr Kachlon, please view the long term picture and the good of the present and future economy.

In my next post I will present a simple practical solution which can work for both the government and the investor. Watch this space…

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