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Deal analysis / Price creep in Haifa
By Guy Liberman
Tags: real estate, haifa 

A two-room apartment in Ramot Remez, Haifa, changed hands for NIS 525,000. The apartment is on the first floor of a building erected half a century ago, which has no elevator or parking - though it's easy enough to find parking on the street.

The apartment measures a total of 40 square meters. Two years ago it was renovated at a cost of NIS 50,000. After its acquisition, the owner rented the apartment for NIS 2,600 a month.

The new owner bought the property for investment purposes, so that's the prism through which we should be looking at the deal.
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Almost all the tenants in the building rent their apartments, as opposed to owning them. Most of them are students, which makes sense, given the dwelling's proximity to the Technion - Israel Institute of Technology.

A simple analysis of returns, comparing the purchase price to rent per year, leads us to 6% a year.

Until a few months ago, you could find plenty of properties in the coastal mountain city that offered returns of 8% a year. But back then, banks were giving more interest on deposits. As things are now, deposits at banks earn you nothing and people are looking at property as an alternative investment, despite the drop in return levels.

Yet, one should not forget that profit on investing in an apartment doesn't begin and end with annual returns. There's also the question of the property's potential future value.

In this case, the buyer behaved like an investor who bought a stock whose price just soared by tens of percent.

Until two years ago, apartments like this one were selling for NIS 250,000 to NIS 300,000 a pop. Suddenly prices in Haifa jumped, as much as doubling.

In other words, the buyer paid a high price and the possibility of selling at a profit looks remote.

The bottom line is that the seller made a good deal. The buyer will get steady returns, but can't expect the property value to rise in the long term.

Realtor Yair Peer of Hanassi Real Estate contributed to the analysis of this deal.
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