Every year, an average of about 3,100 privately owned agricultural plots are sold in Israel, for a total value of NIS 1.5 billion. This is 30% more than the average annual number of sales a decade ago, and the amounts involved are three times larger than in the first half of the previous decade, according to data compiled by the Finance Ministry’s chief economist and sent to Globes.
Through inquiries by Globes, it becomes clear that despite the increase in land purchases, agricultural land being purchased now is not a safer investment than it was in the past, even though some of the land, especially in Gedara and New Ziona, is scheduled to be rezoned.
The volume of agricultural land purchases has increased dramatically in recent years. In 2004 (the first year in which transactions in such land were documented) there were 1,345 transactions with a total value of NIS 223 million. In the first half of the last decade, the annual average was 2,430 transactions with a total value of NIS 530 million. In the past few years, the average has been 3,100 transactions per year with a value of NIS 1.5 billion.
These figures reflect the huge rise in real estate prices in Israel over the past twenty years, and also reflect the level of expectations on the part of agricultural land buyers.
Investing in farmland can take more than ten years, after which in good cases the investor makes a profit. But it is not certain that such an investor could not have found more profitable places to invest his money, and whether the whole headache was worth it. In bad cases, the investment turns out to be a pyramid scheme, where the price of land rises as a result of a trend that has no real economic justification, and then everything collapses when it turns out that nothing happened in reality.
We at Globes generally do not recommend this sector, which is based primarily on speculation and is quite different from solid real estate investing, which involves a great deal of gambling. There are frequent cases involving dubious and fraudulent operators.
But recommendations are one thing, and market behavior is another, and as we mentioned, deals in agricultural lands are on the rise.
Three parts
The agricultural land market in Israel is divided into three main sectors. At least recently, the largest sector has been in the Arab settlements, especially Umm al-Fahm, Arraba and Sakhnin. It appears that this is not a matter of speculative purchases for investment purposes, but rather purchases for agricultural purposes. This article does not address this sector.
The second section is the open area between the settlements of Zichron Yaakov, Binyamina, Pardes Hanna-Karkur and Hadera. The third section is the Shvila area between southern Rishon LeZion and Gedera. Investors targeted these areas a decade ago, and they are still in demand today.
Why is this happening? Because it is a matter of fields close to built-up areas that look like they will be rezoned for construction at any moment, and because housing in these areas is in high demand. There are other similar areas that are attracting interest, such as the Sharon area and around the Krayot area, but the number of deals in these places is relatively low.
Gedera has become the champion of agricultural land in Israel. According to the Israel Tax Authority, last year (June 2023-June 2024), there were 72 agricultural land deals, ranging in value from NIS 12,500 to NIS 4.8 million.
The Gedara area is worth discussing in detail, because it represents an excellent example of the best possible situation for speculators in agricultural land, as most of the land in question lies west of Herzl Street (Route 40), in the fields between Gedara and the nearby settlements of Aseret, Mishar and Kfar Mordechai.
In recent years, about 300 deals have been made on agricultural land in Gedera. This appears to be due mainly to the town’s master plan approved in 2019, which expands the built-up area. Route 40 will be diverted to a new route west of Herzl Street, bypassing the Gedera local authority, and 1,938 housing units and commercial and business spaces will be built between the two routes.
In other words, on paper, investing in land in this location is supposed to guarantee a good return. Does that sound promising? Yes, but. “In general, it’s a matter of privately owned land, and the state can’t go ahead with its plans, because the land is expensive, and many consultants and experts are needed along the way to build new neighborhoods,” says Slaven Banowitz, an engineer for the local council in Gedera. “So in the first stage, it depends a lot on the local council. In the years since the plan was approved, we have had a lot of problems: the Covid pandemic, the war, the local elections, and so things have been delayed, a month here, a month there, six months here, six months there, so a plan that was supposed to be approved in two to three years will eventually be approved in seven to eight years, maybe more.”
“The future of this land depends on the new administration in Gedara, and it is perhaps not certain how much they want to go ahead with it, although there is no legal problem with this land, only an administrative problem.”
You indicate that the local council is in no hurry to implement the plan, why?
“Everyone knows that residential development creates revenue problems for the local council, due to the loss in arnona (local prices), but it is clear that such development is what makes a city. So the council is talking about doing things in stages, that is, waiting with the plans for this site until the commercial and industrial plans are developed, and then we will be more prepared to develop new residential areas. Today, only 5-10% of the Gedera council’s revenue comes from trade and industry.
“So we are developing the first industrial area in Gedera. The plans were approved ten years ago, but the local authority has not received any revenue from it to this day. Maybe in another year we will have a large shopping centre that will start generating revenue for the council.”
In other words, implementing the master plan for Gedera through detailed plans may take at least another decade, due to the council’s prioritization and its desire to develop the industrial areas first.
People bought small plots of land there for 12,500 shekels, and a 360 square meter plot is being sold for 272,000 shekels. What are the implications of this?
“It is a big problem. As a local authority we have no possibility of intervening in the free market, we cannot say ‘buy’ or ‘don’t buy’. People buy very small plots of land, without sufficiently large rights. Let’s say you buy 100 square metres. After future compulsory purchases, you will be left with 30 square metres. If we talk about a density of 20 housing units per dunam (1,000 square metres), you will be left with a small portion of rights that cannot be exercised in practice.
“We will try to balance the planning, but there may be many landowners like these, and it will be difficult to implement the plan until a big player comes along and buys their land. Until then, the plan will not happen.”
In short: rezoning the land at the master plan level is a necessary condition for the success of the investment, but it is not a sufficient condition. In Gedera, there are many obstacles, and investment in land there is still far from bearing fruit.
Rishon LeZion: Mostly for entertainment
The second most popular location for speculative investors in agricultural land is the southern Rishon LeZion area, in the areas north and south of Route 431. Last year, 38 agricultural land deals were made there.
The problem is that most of the land within the city limits of Rishon LeZion on both sides of Route 431 is designated in regional and urban plans as urban recreational areas. Most of the construction efforts in Rishon LeZion are located to the east, in the area vacated by the Tzrifin military base, and to the west, in Block 1000.
This case, like that of Gedera, illustrates the fact that planning is not the only factor that is important in the success of agricultural land investment, but also the priorities of the local authority. In both cases, the local authority moves in other directions.
Ten years ago, there was active trading in the areas of land north of Ness Ziona, which is also located near the 431 line, but most of this land is also located in the entertainment strip. Another area that investors prefer these days is the area north of the municipal cemetery and Neve Amit in Rehovot.
From a planning perspective, this is an interesting area, as a new plan designates it as a combined urban recreation area and urban development. So there will be construction, but perhaps modestly, and under strict planning control. The description “urban development” also probably suggests that this will not happen anytime soon, and as is usual in these parts, construction there will be met with protests and municipal battles.
Pardes Hanna and Benjamin: Metropolitan Park
Pardes Hanna-Karkur is a favorite spot for speculators in agricultural land, and in the past year several deals have taken place there, especially in the area surrounding the town’s borders, the Neve Asher neighborhood and Route 65.
However, this area has been mostly designated in regional and local plans as an urban park. In addition, investors in this area are advised to carefully check the route of the future railway line that is scheduled to pass through it. In the past, speculators have bought land on the path of a road or railway, and have not received any benefit from their investment.
Finally, Binyamina, another settlement beloved by speculators. Last year, land was purchased in the fields east of Binyamina, and to the west between the town and Route 4.
A master plan has been drawn up for Binyamin and neighboring Givat Ada, but it has been objected to by the local council and many residents, and has yet to be approved. At present, the fields to the east of the plan are designated as agricultural areas, some even as ecological corridors, meaning that the chances of them being reclassified are slim.
In the west, most of the land along Route 4 is zoned as agricultural, but some is zoned as industrial. Land prices in that area are supposed to be much higher than elsewhere.
National Committee for Planning and Construction of Primary Housing: Not a Gold Mine
We cannot conclude this article without the following remarks. One of the biggest mistakes made by speculators stems from the government’s wholesale rezoning of areas in recent years through the National Planning and Construction Committee for Priority Housing, in order to build new neighborhoods on the outskirts of cities, especially in remote areas. People think, “Hey, farmland is being rezoned, and quickly, even against the initial plans.”
This is true, but the government does these things only on state-owned land, which is controlled by the Israel Lands Authority, and not on privately owned land, except in exceptional cases (Glilot, for example). Therefore, this idea is fundamentally wrong, and investors should examine the feasibility of any investment on this basis with open eyes.
This article was published in Globes, Israeli Business News – en.globes.co.il – on July 9, 2024.
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