As Israel’s longest war marks a year, the real estate market (especially new homes sold by developers) is flourishing in a way not seen since the post-COVID era. Israelis are flocking to buy homes - primarily new units from developers - and, on the surface, it seems like paradise for developers. But is it truly as rosy beneath the surface? Why is this happening? What can we learn from past events? From international trends? And, most importantly, how will it all end - for real estate, not the war?
According to the Central Bureau of Statistics, 22,670 apartments were sold in Israel in the first quarter of the year (April - June 2024), a 38% increase compared to the same period last year. Notably, 46.4% of these sales were new apartments, a substantial increase from previous years when new apartment sales accounted for just 25-33% of total transactions.
Nir Shmoul, CEO of Snir Real Estate Marketing, commented, “The data shows Israelis are voting with their feet, buying significantly more apartments than last year, especially new ones, thanks to developer incentives and attractive financing terms—like paying 5-20% now and the rest upon occupancy. For developers who need cash for construction, there’s even a bridge loan option with interest covered by the developer. So why is this happening?
1. Long-term stability: Despite turbulent times, the Israeli real estate market is perceived as safe and stable. Apart from 1965-1985, when prices dropped by around 6%, and 1995-2005, when prices were flat, real estate in Israel has shown consistent growth. Some years saw modest 1-3% increases, while others soared with gains of 5-20%, like the peak year of 2022. Economically, real estate remains a solid, dependable investment, especially compared to other options like currency, stocks, bonds, or higher-risk investments in uncertain times.
2. Jewish memory: Perhaps because of long years of exile, Jewish people have always sought a secure home. Israelis, wary of the past, value the safety that a home represents. Even though the October 7 attack shattered this perception for many, a home still embodies security. Amidst existential fears, a home provides peace of mind.
3. Economic stability concerns: Worries about a recession, tax hikes, and banking stability in an endless war have led many Israelis to view real estate as the safest investment. Amid expectations of future taxes, no end in sight for the war, and recession fears, some people are worried about a decline in living standards and banking stability. As a result, they’re putting money where it feels most secure—into bricks and mortar.
4. Developer incentives: Payment terms have never been more favorable in Israeli real estate. Buyers can pay 5-20% upon signing, with the balance due near occupancy, typically in 3-5 years. Previously, such terms were rare, limited to short presale periods and specific units. Now, all developers are competing to lower initial payments without linkage (or minimal linkage), with final payments due at occupancy. Developers also waive underwriting, so they don't assess buyers' repayment capacity, increasing risk.
Is this a paradise for buyers? Perhaps. But is it paradise for developers too? In this scenario, developers seem to take on the risk, almost as if they're betting on buyers. If buyers can’t complete the transaction, developers can repossess the property upon occupancy and resell it, with a typical 10% cancellation fee.
Impact of the political situation on the public
Political stability also plays a significant role in the decision to buy real estate, especially for investors. The prolonged war, political instability, social divides, and credit downgrades are significant motivators for Israelis and even Jews abroad (amid rising antisemitism) to buy homes in Israel. This trend has led to a rise in domestic property sales, but also a wave of Israelis purchasing properties abroad. Many Israeli families (likely including people close to readers) have also decided to temporarily relocate abroad, hoping to return one day. Emigration has risen by over 40% compared to last year, which was already high, largely due to political, social, and security concerns.
This article was written in cooperation with Nir Shmoul