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You won’t find regular articles about the luxury rental market in ordinary real estate sites. Although this market segment is limited and exclusive, it is as active as ever and creates interesting deals that hit the headlines. A luxury property can be leased for at least NIS 20,000 per month and reach NIS 100,000 or more, particularly in Tel Aviv and Herzliya, which are ranked the main, most sought after luxury rental real estate areas. Next by a wide gap are attractive properties in Jerusalem, Ramat Hasharon and Rishon Lezion.
Upturn in supply and demand of luxury rental properties
Only recently, the media reported on two interesting transactions that were finalized in Tel Aviv, both in luxury residential projects on Rothschild Boulevard. The first is a 240 square meter apartment in a boutique building at an estimated value of NIS 35 million. The apartment was leased for NIS 70 thousand per month to foreign residents who immigrated to Israel and wanted to enjoy the bustling city life. The second is in the luxury Meier building located at the corner of Rothschild Boulevard and Allenby Street. Under this transaction, one of the most expensive deals on Rothschild in the current period, a 300 square meter apartment valued at around NIS 35 million, was leased for NIS 100,000 per month for a two-year term, to foreign residents as well.
These reports are not surprising and express the upturn in supply and demand of luxury rental properties, that has increased greatly since the COVID-19 period and also continues today. According to data collected by the Yad2 website, in the first quarter of 2021, 680 rental properties were offered in Israel at a price exceeding NIS 20,000 per month, whereas in the first quarter of 2022, the supply rose to 1,090 properties – 60% of them in Tel Aviv and 21% in Herzliya, where the most luxurious rental properties are located.
The best that luxury real estate has to offer
The supply of luxury real estate includes unique boutique apartments in prestigious urban renewal projects in strategic areas as well as apartments in exclusive towers, some on the seafront. Other sought-after properties are expansive, well-equipped villas, most with an indulging swimming pool and plenty of space and tranquility.
These properties are particularly suitable for highly affluent clients in return for which they enjoy all the benefits and abundance that luxury real estate has to offer. Among the clients, foreign residents, businesspeople, high-tech entrepreneurs, importers, company owners, attorneys, and senior physicians. The landlords usually prefer leasing the properties for short terms of two-three years. Transactions that are considered long-term are usually closed for five years with an extension option for another five years.
The reasons for choosing rental over purchasing are varied and include different considerations. Some tenants wish to experience the area before deciding to buy a luxury property there, or they are waiting for the property that they purchased which is still under construction. Others are at a stage in life where they prefer to live in a temporary property that does not require a significant purchase. In addition, there are also business considerations where a lease is more profitable than purchasing a luxury property with high standards.
Maintaining the value of the property
For the property owners, rental could be more profitable, especially if they have other real estate and do not live in a property permanently or during periods of absence for business trips abroad. The rent is actually a current return on the property together with the high yield expected from an increase in value in a future sale.
The conduct of real estate owners with tenants in the luxury property market is completely different to that in the ordinary rental market. First in finding the most suitable tenants in Israel and abroad. Then, communication between the parties must be conducted to high standards, providing immediate solutions and uncompromising quality. The owners usually prefer to manage their property through a professional specializing in the luxury real estate market, who besides managing and maintaining the high level of the property, will also be able to manage its sale in the future.
