Tel Aviv Property Index · Decisions

Rent or buy, with the arithmetic shown

Every oleh asks this in year one and gets an answer based on someone's instinct. Here it is as a model: purchase tax at your actual bracket, transaction costs, the mortgage, arnona and maintenance, against rent and what your deposit would have earned elsewhere. The answer depends almost entirely on one assumption, and the model shows which.

₪11,286monthly payment, ₪3m at 65% LTV
₪144,538buying costs, sole residence
₪339,000buying costs, if you own elsewhere
year 7break-even, if prices rise 4%

It all rests on one assumption

On a ₪3,000,000 flat let at ₪7,500 a month — a 3% gross yield, which is normal for Tel Aviv — buying does not overtake renting within thirty years if prices stay flat. At 2% annual growth it still does not. At 4% it crosses in year seven.

That is the honest finding, and it is uncomfortable. At Israeli yields, buying is a bet on capital growth rather than a saving on rent. Anyone telling you rent is money down the drain is assuming a price forecast without saying so.

Figure 1 — owner's position against renter's, three price paths

When buying overtakes renting Owner's net worth minus renter's, ₪ thousands, on a ₪3m flat let at ₪7,500 −3,608 −1,648 311 2,271 4,230 10 25 30 years from purchase prices 4% a year 3,577 prices 2% a year −592 prices 0% a year −2,954 Above the zero line, buying has won. Below it, renting is still ahead. At flat prices it never crosses within thirty years.

The renter is credited with investing the deposit and every year's difference in outgoings at 4%. Removing that assumption flatters buying.

The entry cost is the other half

Purchase tax on a sole residence starts at zero and steps up. If you own property anywhere in the world — including a flat you kept in London or a share of a family home — you land on the additional-property ladder, which starts at 8% from the first shekel.

On this purchase that difference is larger than two years of rent, and it is paid on day one. It is also the single most common unpleasant surprise for buyers arriving from abroad.

Figure 2 — total buying costs, two tax positions

What it costs to get in All buying costs on a ₪3,000,000 flat, tax and fees Sole residence tax ₪45,538 ₪144,538 Second or foreign owner tax ₪240,000 ₪339,000 Owning property anywhere in the world adds ₪194,462 to the same purchase. That gap alone is roughly two and a half years of gross rental yield.

Running your own numbers

What changes the answer most

  • Your tax bracket. Sole residence against additional property is worth more than several years of the rent difference.
  • How long you will stay. Under about seven years, transaction costs dominate everything else.
  • The yield on the specific flat. A 2% yield and a 4% yield are different decisions, not different shades of the same one.
  • What your deposit would otherwise do. This is the cost people leave out, and it is the largest single item after the tax.
  • Whether you are actually forecasting. If your answer needs 4% growth a year, say so out loud.

Method

The model charges the full purchase cost up front, then a monthly mortgage payment, maintenance at 1% of value, arnona and building fees each year, and selling costs on exit. The renter pays rent rising 3.5% a year and invests both the deposit and any annual difference in outgoings at 4%.

Price growth is set to zero by default. Every scenario that favours buying on this page is a scenario in which prices rise, and the chart shows exactly how much rise it takes.

Purchase tax brackets are index linked and change each January. They are one edit in the model file and should be verified against the Tax Authority before each publication.

Israel Tax Authority purchase tax brackets; Bank of Israel mortgage rates; CBS rent and arnona data. Model assumptions are stated on the page. Tel Aviv Property Index. Figures are recomputed on each data release; the date above each chart is the vintage shown. Provisional Tax Authority reporting is revised for several months after a quarter closes, so the two most recent periods in any series will move. This page is market information, not advice on any particular property or transaction.