3.3 Million Shekels in Tel Aviv: The Tax Authority Is Examining Deals Like These

₪3.3 Million in Tel Aviv: The Tax Authority Is Examining Deals Like These

The property is a 2-room apartment measuring 52 sqm, located on the sixth floor of a building at 220 Ben Yehuda Street in Tel Aviv, with no balcony and no parking. The apartment is intended for short-term rental and tourists: “Potential yield of 5.5%”

The Deal:
A French resident purchased a 2-room apartment measuring 52 sqm on the sixth floor of a building at 220 Ben Yehuda Street in Tel Aviv for ₪3.3 million. The buyer intends to use the property for short-term rentals, including Airbnb.

District 3

District 3 forms part of Tel Aviv’s Old North and is located between Ben-Tzion Boulevard, Marmorek Street and Bograshov Street to the south, the Yarkon River to the north, the Mediterranean Sea to the west and Ibn Gvirol Street to the east.

The district covers approximately 2,400 dunams and is considered part of “classic Tel Aviv,” shaped by the city’s first master plan from 1932, known as the Geddes Plan.

In 2016, the Tel Aviv Local Planning Committee approved the District 3 plan, allowing for the renewal of older residential buildings in a manner similar to TAMA 38.

One of the main challenges for projects of this kind is the relatively small size of the plots in the district, many of which are smaller than half a dunam. As a result, redevelopment is generally carried out through the reinforcement and expansion of existing buildings, as opposed to the many demolition-and-reconstruction projects found in neighboring District 4.

Prices for new apartments in the district currently average around 70,000 NIS per sqm, although the range is broad, generally between ₪50,000 and ₪80,000 per sqm, and sometimes outside that range, depending on factors such as floor level, planning limitations and the specific characteristics of the apartment.

The Project

The property is part of a TAMA 38/1 project, which includes strengthening the existing building, originally constructed in 1957, and adding approximately 2.5 additional floors.

The building permit was issued in March of last year.

Once construction is completed, the building will contain 22 apartments, including 10 existing units and 12 new apartments.

According to the Israel Tax Authority website, several new apartments in the project have already been purchased. Apartments measuring approximately 50 to 56 sqm have sold for between ₪3.16 million and ₪3.7 million, representing an average price of approximately 64,000 NIS per sqm.

The project’s 4-room penthouse, with a 70 sqm terrace, sold for 9.85 million NIS.

At first glance, apartment prices in the building appear to be approximately 10% below the average price of new apartments in District 3. However, two factors contribute to this: the apartments do not have balconies, and the building does not include private parking spaces. A parking space in the area can cost approximately 500,000 NIS or more.

Taking these factors into account, the project may actually be considered relatively expensive.

The current transaction reflects a price of approximately 63,000 NIS per sqm, which is relatively high considering the lack of a balcony and parking.

The apartment’s high floor and the views it enjoys naturally contribute to the price.

Overall, the transaction is considered reasonable for the area.

However, the deal is not without risk.

Short-term rental activity may face challenges. Although the state has difficulty identifying apartments being operated as short-term rentals, the taxation applied to such properties is intended to be considerably higher.

An apartment of this kind may be classified as a business, meaning that ordinary income tax could apply, without the exemptions and tax benefits available for standard residential rentals.

The municipality may also impose significantly higher municipal taxes if the apartment is classified as being used for hotel or hospitality purposes rather than residential use.

In addition, neighbors and the legal system may intervene and potentially prevent an apartment from being operated in this manner.

The Marketer’s View

“We are seeing increasing interest from both Israeli and international investors in smaller apartments in prime Tel Aviv locations, particularly when the property can serve both as a vacation home and as an income-producing asset,” says Roie Kaner, CEO of Montefiore Real Estate Group, Israel’s top luxury real estate agency, marketing the project.

“The project is located close to the beaches and the sea, Dizengoff Street, cafés and restaurants, the light rail and some of the most desirable areas of the city.

“According to our estimates, with short-term rentals, even in the current market, an apartment like this can generate approximately 15,000 NIS per month during the season.

“On an annual basis, this represents a potential gross yield of approximately 5.5%, of course before expenses, management fees, taxation, actual occupancy and periods during which the owner chooses to use the apartment personally.”