Buying an apartment for investment?

Expect a dramatic change soon

The Securities Authority has published a report that contains statements that could be dramatic for investors, especially abroad but also in Israel. What does this mean and why may the volume of Israelis' purchases abroad decrease dramatically?

Adv. Guy Kleinbaum, Guest Column

27/03/2022

Sunday, 27 March 2022, 09:07

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Last week, the Securities Authority published an audit report on the securities offer. The published report contains statements that could be dramatic for Israeli real estate investors and the types of transactions that exist today in the sophisticated real estate market.

The report states that if to date real estate purchase transactions in which the buyer's ownership was registered were not part of securities policy, now even such a purchase may find itself subject to the Securities Act.

According to the Securities Authority, certain services that accompany the purchase, and are intended to allow buyers / investors certainty and almost complete passivity, sometimes have the effect of turning the transaction into an investment in securities, and therefore the entrepreneurial company is required to publish a prospectus in Israel. Interested in offering the investment to the Israeli public.

The analysis of the Securities Authority may affect not only Israeli real estate investors, but the entire Israeli economy.

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Israeli investors like to invest abroad in small amounts, but it is very possible that conditions will soon make it difficult for them (Photo: ShutterStock)

In recent years, there has been a significant increase in the various real estate transactions carried out in Israel and abroad.

When interest rates are zero, the capital market is volatile and unstable

, more and more investors are choosing to invest in real estate and alternative investments, in order to yield a return on their money.

A need for survival for everything. As real estate prices rise in Israel, real estate investments abroad have become attractive to the Israeli investor, who is interested in making investments in smaller and more accessible amounts.

For investors, there is a significant difficulty in managing real estate assets overseas. Indeed, these investments require them to have their hands on the pulse, understand the local market, monitor the progress of the project built, work with authorities, management companies and various professionals, know the regulation, legislation And the local language, advertise the property, find tenants, maintain and manage it, and all this when most of them have a livelihood and family in the country. Therefore, they are interested in passive investment as much as possible. , To invest in real estate, without having to physically arrive at the property early in the morning and evening, for the purpose of its management, maintenance or rental.

No one in the industry, including the entrepreneurial companies, imagined, during its construction, that one day the same mechanism would lead the Securities Authority to view these real estate transactions in securities transactions, as defined in the Securities Law, 1968, and apply the law to them. Securities.

Transverse meanings with enormous implications

For the developer and buyers, this is a regular sale, in which the only thing different is that the entrepreneurial company wanted to make it easier for buyers, give them confidence, and make investments more attractive and easier to manage from anywhere in the world, and invented the same mechanism to attract foreign investors .

The report of the Securities Authority apparently did not take into account the implications that this report may have on the market and the sophisticated investments that exist in it for the benefit of the investing public.

The line that guided the Securities Authority was a bit spotty and not wide enough, and probably did not fully understand its horizontal implications for foreign entrepreneurs and other factors in the field, which mediate between the Israeli investor and the foreign entrepreneur / contractor.

The various entrepreneurial companies, which recruit investors from all over the world for the various projects they manage, will not bother for a small market like the Israeli market, to publish a prospectus in Israel.

With all the procedure, costs and resources involved.

Indeed, these are usually contracting companies and / or entrepreneurs in the field of traditional real estate, for whom the Israeli market is not important and interesting enough for them to operate in a different and specific way for Israeli investors.

The results of the report may cause fewer Israelis to invest in real estate abroad, since they do not have the time, resources and knowledge to do it themselves, if not for those entrepreneurial companies that address all those barriers and difficulties for them and thus make their investment and investments more attractive in the Israeli market. Even those who still choose to invest in real estate investments abroad will be re-exposed to problems that the investment mechanism of the entrepreneurial companies is designed to solve. Investors will have to locate the real estate assets themselves and deal with a variety of problems of regulation, language and working with such professionals. And others.

Among them are asset management companies, which sometimes have conflicting interests of their own.

That sometimes, they will prefer to change tenants frequently due to one economic interest or another, as opposed to the investor interest.

Adv. Guy Kleinbaum (Photo: Yachz)

The passive investment mechanism of entrepreneurial companies, provides stability and certainty to investors whose value is invaluable, and it was built solely to refine and upgrade the real estate world. "Israeli and less accessible and effective.

The fear of fraud exists everywhere and in every field. Early in the morning and tonight we see such and other scams in the various editions and on various sites. The regulator's attempt to reduce them through law and supervision is welcome, but fear of foreign entrepreneurs This type of investment will be less common in the Israeli landscape, and investors who invest in the field will now have to "deal" more with their investment and the difficulties associated with it, will be exposed, no less, to scams and fraud that the regulator tries to prevent and reduce.

I believe that there must be cooperation between the regulator and market leaders in this field, and reach an understanding of how to build a policy that, on the one hand, will enable the development of sophisticated mechanisms that encourage this type of investment and allow the Israeli investor to enjoy a sophisticated market. Their money.

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