Peripheral Real Estate Slump: Investors Take Heavy Losses on Older Apartments
Real estate investors in Israel's periphery, particularly Dimona and Beersheba, face steep losses on older apartments lacking protected rooms amid shifting market conditions.
Real estate investors frequently hunt for good property deals, but the rules of the game have shifted significantly across Israel's periphery. While investors once flooded into Beersheba to buy apartments for 300,000 shekels and flip them for double after renovations, those same units now cost between 700,000 and 800,000 shekels, turning renovation costs into a real financial loss. Consequently, Beersheba currently records the highest real losses for investors.
The Shift to Dimona and Ofakim
Some investors migrated to Dimona and Ofakim to capitalize on more generous tax benefits. In Ofakim, the tax credit stands at 18% up to an annual income ceiling of roughly 160,000 shekels, while in Dimona, residents and tenants receive a 16% tax credit up to an annual income ceiling of approximately 206,400 shekels.
Investors who purchased new apartments in Dimona between 2018 and 2020 earned considerable returns, with three-room apartments jumping from 900,000 shekels to between 1.25 million and 1.3 million shekels today. However, buyers of older second-hand apartments lacking a protected room (mamad) have faced plunging demand since the outbreak of the war in Gaza, leading to steep realized losses.
A three-room apartment on HaTatzchanim Street, purchased four years ago for 435,000 shekels, was recently sold for just 260,000 shekels—representing a staggering 40% loss.
Mounting Second-Hand Losses
Additional transactions highlight the ongoing distress in the secondary market. A property on HaShlova Street bought for 515,000 shekels in June 2021 was recently offloaded for a bargain price of 390,000 shekels, marking a drop of over 24% across five years. Other deals show marginal nominal gains that are completely wiped out once legal, appraisal, brokerage, and transaction fees are factored in.
For example, a flat on HaMaapil Street acquired in January 2023 for 555,000 shekels was recently sold for 587,000 shekels. The nominal 32,000 shekel gain—about 5.8%—likely translated into a net loss after covering one-time ancillary expenses. Similarly, a unit on Ariel Sharon Street bought in April 2023 for 440,000 shekels was resold for 420,000 shekels, inflicting both capital depreciation and opportunity costs on the investor.
These market dynamics underscore the urgent need to overhaul how housing data is tracked, particularly following recent decisions by the Central Bureau of Statistics regarding second-hand indices. Properties lacking modern safety reinforcements continue to drag down overall pricing trends across peripheral regions.
