Bank Deposits vs. Real Estate Investments Abroad

Real Estate Investment vs. Bank Deposits: What’s the Better Choice?

In recent years, investing in real estate abroad has become a significant part of many investors' portfolios. With rising interest rates, banks are now offering competitive deposit rates. So, how should one decide between real estate and bank deposits?

Here are key points to consider:

1. Yield: Real estate abroad offers two forms of return—rental income and property appreciation. In 2022, property values in Cyprus increased by 6% overall (8% in Limassol), with an average rental yield of 4.7% (our latest deal yielded 8.4%). Bank deposits, however, offer a single return component, with fixed or variable interest. As of May 2023, the average interest rate on one-year fixed deposits was 4.3%.

2. Inflation Protection: To preserve the value of your money, returns must outpace inflation, which stood at 5% in Israel (April 2023). Bank deposit rates typically lag behind inflation, whereas real estate investments, often correlated with inflation, can provide better protection against it.

3. Taxation: In Israel, unlinked bank deposits are taxed at 15%, while linked deposits are taxed at 25%. For foreign rental income, investors can choose between marginal tax rates with deductible expenses or a flat 15% tax. On property sales, a 25% capital gains tax applies, but property-related expenses are deductible.

4. Liquidity: Bank deposits lock your funds for a set period, with longer terms offering higher interest. Real estate offers flexibility in timing for sale, but it’s less liquid, as selling a property typically takes months. If you need quick access to your money, real estate may not be ideal.

Each investment type carries its risks and rewards. Thorough research is essential, and it’s crucial to balance your desired return with the level of risk you're comfortable taking.