The Evolving Customer Lifecycle‍

The cycle begins on the day the customer signs a purchase agreement and concludes with the delivery of the apartment keys. From that moment, most communication between the customer and the company primarily revolves around payments, malfunctions, defects, and customer service. Real estate development companies in Israel have, until now, been accustomed to a customer lifecycle ranging from a few months to approximately 5 years.

Consequently, the ability to command a premium based on company reputation in Israel is not high today. Indeed, to date, once the keys are delivered to the customer, developers have grown accustomed to the sole means of maintaining a positive relationship with clients being the preservation of the company's reputation.

In my opinion, all of this is poised for change, as the long-term rental market will compel companies to implement shifts in several core perceptions.

A 60-Second Overview of the Israeli Rental Market:

According to data published in the press, the percentage of residential apartments for rent in Israel currently stands at 30%, compared to 50% in Western countries. Of that 30%, approximately 95% are privately owned and utilized by their owners as investment properties.

In practice, renters lack the ability to live with basic certainty throughout the duration of their rental agreements, which is reflected in everything from rent prices to the ongoing maintenance of defects and the building itself. However, setting aside psychological analyses, when most apartments are held by private owners and there is no law regulating rental agreements, it is the tenants who suffer significant disadvantages. There are many arguments surrounding the question of why there is a preference for ownership in Israel, including the Jewish people's need for a 'home,' consumer culture, and so forth.

Under such circumstances, it is only natural for a preference for purchase to develop. We have all witnessed the recent unreasonable price hikes, and simultaneously, we are aware of numerous cases where apartment owners have refused to properly repair and maintain their homes.

The Emergence of Long-Term Rentals‍

All these benefits, without the need for hundreds of thousands of Shekels in equity and a mortgage commitment. This is where the long-term rental market enters the picture, enabling individuals to rent an apartment in a way that creates the certainty of 'homeownership'.

So much for the customer-side changes, but what will happen on the developers' side?‍

Since development companies will become the owners of these apartments for a period of no less than 15 years, many of their perceptions are expected to change.

The first will concern construction quality and material selection.‍

Companies will need to understand that the apartments will only be released for sale in 15 years, at which point they will be marketed with the aim of selling them for significant developer profit and receiving tax benefits stemming from the government's long-term rental program/approved enterprise.

Now, the developer's interest in meticulously maintaining the building, systems, and apartment interiors has also been added to the consideration, ensuring quality is preserved even after 15 years. Until now, the selection of luxurious materials primarily served development companies for marketing and positioning new projects, and in many cases, this was merely on paper.

‍Re-evaluating Service Contracts:‍

Another area of change concerns service contracts with suppliers. Traditionally, development companies aimed to secure the lowest prices for facilities such as air conditioning systems and elevators, sometimes achieving cost savings by shortening service periods or limiting coverage.

However, with responsibility remaining with the development companies, their need for comprehensive coverage for the longest possible period will require them and their suppliers to construct new service packages. One way to do this is by shortening the service period or narrowing the coverage.

‍Extending the Customer Lifecycle:‍

The leasing company is no longer a private household that can ignore tenant requests and property conditions; it will need to establish a call center capable of answering customer questions, handling malfunctions, and providing ongoing maintenance. Under these new circumstances, development companies will be required to maintain contact with customers throughout the entire agreement lifecycle. Perhaps most importantly, the customer lifecycle will dramatically expand.

‍New Revenue Streams and Opportunities‍

This extended relationship opens up exciting opportunities. As the number of tenants renting from these companies grows—potentially reaching thousands or even tens of thousands—there is potential to offer additional services beyond just rent and management fees.

Development companies can explore additional revenue streams by offering packages that include furniture, appliances, interior design services, and even finished products. They can provide tenants with internet services, streaming subscriptions, and electricity—and leverage their purchasing power to profit from these offerings.

Furthermore, partnerships with market players interested in creating customized products and services for tenants offer additional avenues for profit sharing. It is conceivable that development companies may increasingly resemble operators of residential support facilities, providing a wide range of services directly to tenants.

Looking Ahead‍

In the future, the long-term rental market is expected to grow significantly. It is likely that we will witness greater disparities between projects within the same neighborhood, with an advantage given to those where development companies successfully implement these new strategies. Companies that adapt will benefit from reputational advantages and higher profitability.

Historically, residential projects were quite similar, with only minor differences. However, as companies begin to offer a wide range of complementary products and services—and varying levels of customer service—significant distinctions will emerge between them.

Tenants will be willing to pay higher rent within the same neighborhood for apartments of the same size, based on the reputation of the leasing company and the additional products and services it provides. Consequently, development companies that provide excellent and efficient customer service are expected to profit faster and more significantly than ever before.

Conclusion‍

The rise of the long-term rental market in Israel is expected to transform the real estate industry. Development companies must adapt to this new landscape by improving construction quality, extending customer relationships, and exploring new revenue streams. Those who do so will not only enhance their profitability but also contribute to a more stable and tenant-friendly housing market.

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