In Israel, there are two types of land available. Property may be built upon:

Private land. Land owned by the Israel Land Authority (Minhal) and leased for a period of years. Private land is in short supply in Israel, and only some 5% of the land is private. Private land is available primarily in the older cities and towns, and other areas which were settled early in the history of the modern state.

The majority of the country’s land is held by the Israel Land Authority, which was created in 1960 to administer lands held by the state, primarily those which had been acquired over the years by the Jewish National Fund. In keeping with the nationalistic and socialistic concepts prevalent in the governments of the time, those lands were considered national lands, and were not to be sold permanently, but rather to be leased for a period of 49 years, with an option for renewal for an additional 49 years. The lease period corresponds with the biblical concept of the Jubilee year, in which all lands sold during the 49 year Jubilee cycle were to be returned to their original owners in the 50th year.

Minhal land is offered for lease in periodic closed bid auctions which are announced to the public in the newspapers. The land is initially leased under a development contract which requires construction on the property within a specified period of time, usually three years, after which the lessee receives an actual lease. The construction requirement is intended to encourage development, and to prevent speculative purchase of land, where an individual might seek to lease Minhal land in anticipation of a price rise and subsequent resale. In addition, the Minhal requires lessees to submit to it for approval all building plans on properties it leases, in addition to the normal approval process of local authorities. This contract provision adds more time, effort, and cost to the approval process.

Minhal land is leased without tender to specific end users only in special situations where the government seeks to encourage growth, such as development areas where land may be leased directly to industrial companies and developers for special uses.

The predominant form of Minhal land leases are capitalized land leases, where the major portion of the entire stream of payments for the 49 year lease period is prepaid at the outset, with the total price calculated to take into account the value of the up front payment. The most common type of lease is executed by an initial payment of 91% of the property value, with no additional payments. The remaining 9% is symbolically the state’s portion of ownership.

The initial lease is for a 49 year period, with an option for an additional 49 years.

Although many buyers prefer private land, nevertheless, most investors have no choice but to purchase Minhal land. It is interesting to note that prices for private versus Minhal land do not vary greatly within the same property market.