In recent years, a lively movement of private investors has begun from the expensive and tough apartment market to other real estate markets, and in particular to the land market. Why are so many investors choosing the land market at this time? And how does the so-called 'real estate sharing agreement' encourage this shift? We left to check what is behind the scenes of this interesting phenomenon, and we came back with surprising answers.
The apartment market in Israel is, these days, almost impenetrable for the new simple investor: prices are too high, interest rates are skyrocketing and the market is almost completely exploited. These three mean that ordinary investors almost never manage to set foot in it. But do they have to? Some say that nowadays, there is no longer any need to insist on the apartment market, as there are more interesting and accessible opportunities in other real estate markets.
Today, there are land development companies that offer their clients to enter into a land sharing agreement with them, and it turns out that this is what makes all the difference as far as investors are concerned. Let's understand what it is about, and whether this type of sharing agreement really justifies the growing interest in the land market.
The difficulties in the land market
Initially, the move of private investors to the land market in recent years surprised the real estate professionals in Israel very much. This is because the land market contains quite a few difficulties for the ordinary investor. First of all, this market requires a lot of patience from the investor. Unlike the apartment market, The profit from investing in land can only be seen when the land becomes available for construction: usually, land investors will prefer to realize their investment in land only when there are already properties on it.
This means that they will have to wait quite a bit for the approvals and the resolution of the many bureaucratic issues that the State of Israel presents to them before they see the fruits of their investment.
And that's not all: It is important to remember that the land market is a very different market from the apartment market, and therefore it requires those who want to invest in it to learn a new world of concepts, unique taxation laws and new ways of conducting themselves. What's more, locating improvement deals in the land market is no small matter. Therefore, most investors use a third-party broker to locate improvement deals for them - which usually complicates and makes the investment very expensive.
It is important to remember that investing in land is anyway (on the face of it) not exactly the bread and butter of private investors - because most of them fear, and rightly so, that they would not know how to realize the investment optimally.
No more difficulties - a sharing agreement is the solution
As mentioned, the tendency of private investors towards the land market started only a few years ago, and therefore this market is - compared to the apartment market - still largely untapped. As of 2024, it still has a multitude of investment opportunities at accessible prices. Many are still captive to the concept that the land market is not suitable for private investors, so they continue to ignore the tremendous potential that lies before them, which is a shame. A land sharing agreement is a very common thing in a land enterprise company, which actually solved the problem of private investors' fear of investing in land.
Entrepreneurial companies of this type specialize in locating lands for improvement with high potential. After this type of company purchases land it is interested in, it recruits investors who buy parts of the deal it offers for sale, and manages the investment process for them. Meaning, the transaction the investor enters into is a transaction that the entrepreneurial company itself is interested in, and in order to carry it out, it gives the investor an opportunity to enter into an investment with it and realize it together with it. And this is good for the investor for a number of reasons.
First, the customers within the framework of a partnership agreement are partners in the entrepreneurial company's investment for all intents and purposes. They are incorporated under the same agreement, and accompanied by professionals in the field, such as real estate lawyers. They do not need to contact two different entities (an intermediary entity and an investment advisory entity), but receive both of these in one place, by an entity that also makes the investment for them. What this means, among other things, is that the investor does not need to study the land market in order to invest Bo - the entrepreneurial company does it for him.
It is important to remember that real estate entrepreneurial companies know how to find improvement deals at lower prices than marketing companies, and that they have an interest in making the land available at a price convenient for the user, since they rely on crowdfunding for their investments.
Timing is important
In light of the findings, it makes sense that more and more Israelis are choosing today to sign a land sharing agreement with a land development company. Gone are the days when the private investor did everything to penetrate the apartment market - today he has options. There is no doubt that there is justification for this increasing shift of private investors to the land market, but if this shift continues at a similar rate (or increases), this market will also become saturated before too long. Therefore, the timing of entering it is also an aspect that should be taken into account.