Residential Real Estate
Overview: Israel’s housing market remained robust through 2024, with prices rebounding after a brief cooling in late 2023. A persistent demand-supply imbalance – fueled by rapid population growth and limited land – continues to drive up home values. Even the disruptions of war in late 2023 only temporarily slowed activity, with demand bouncing back quickly.
Property Prices
Home prices rose consistently in 2024, recovering from a slight dip in the second half of 2023. By late 2024, prices were about 7.8% higher year-on-year. All regions saw increases, led by the Tel Aviv area (↑1.2% in Oct–Nov 2024) and broad annual gains – Haifa District up 11.7% year-on-year, North +10.2%, Tel Aviv +8.8%. This upward trend is attributed to Israel’s chronic housing shortage and strong household formation, which keep upward pressure on prices.
Demand & Supply
Buyer demand remains very high, underpinned by longstanding housing shortages and rapid population growth. Immigration and high birth rates contribute to the chronic undersupply in the housing market. On the supply side, new construction has been trying to catch up – the total housing stock grew 2.1% in the year up to mid-2024 (adding ~61,200 units). By late 2024 the pipeline of homes for sale reached a record ~71,000 units (new apartments on the market). Normally, such a high inventory would cool prices, but developers spurred sales by offering attractive financing schemes (e.g. “20/80” payment plans), which kept demand robust and allowed prices to keep rising despite the supply glut.
Market Activity
After a war-induced slump in fall 2023, transaction volumes rebounded. In November 2024, 7,150 apartments were sold, a jump of 73% compared to war-affected October 2023 and about 8.5% higher than November 2022. The latter part of 2024 saw renewed buyer confidence – mortgage lending picked up again after hitting historic lows during the conflict. Investors have been more cautious: in November 2024 investors bought ~1,087 units (17% fewer than a year prior) and even net sold some holdings, as higher interest rates and new taxes made speculative buying less attractive. Overall, however, end-user demand (first-time buyers and upgraders) stayed strong, ensuring continued market activity into 2025.
Commercial Real Estate
Overview: Israel’s commercial property sector showed a mixed picture. Office real estate has faced headwinds from the tech downturn and rising vacancies, while retail and industrial segments have been comparatively resilient. Foreign investor interest in high-quality commercial assets remains notable.
Office Space
The office market is experiencing a slowdown with rising vacancies and falling rents. In 2023, average office rent levels plunged ~16% as downsizing by tech companies flooded the market with sublease space. Prime business districts saw rents fall from ~₪136 per m² in 2022 to ₪114 in 2023. Many newly built office towers are struggling to fill space – for example, large projects like Jerusalem’s Broshim Campus (25 floors) remain mostly empty, and a major Petah Tikva complex opened with only ~40% occupancy. Even in Tel Aviv, older B- and C-class office buildings have high vacancy rates, reflecting companies’ reluctance to expand offices during economic uncertainty. In contrast, top-tier “trophy” office towers (Class A) in prime locations continue to attract tenants and even have waiting lists. This divergence shows that while the overall office sector is soft, there is still demand for the very best spaces. Broader factors – global tech retrenchment, the shift to hybrid work, and local uncertainty (from COVID to security concerns) – have led many firms to postpone major real estate decisions, dampening the office market in the short term.
Retail Real Estate
The retail sector has been relatively stable and even improving as consumer activity rebounds post-pandemic. Shopping mall foot traffic and sales have risen through 2024, supporting occupancy rates. Industry reports noted strong growth in shopping center tenant revenues during 2024, which has bolstered retail real estate performance despite the wartime jitters. In other words, Israelis have largely returned to malls and retail centers, helping landlords maintain rent levels. Major shopping center operators report near-full occupancy, and some are expanding or renovating, anticipating continued consumer demand into 2025. That said, e-commerce growth is an ongoing factor; retail landlords are focusing on experiential offerings to keep malls attractive.
Industrial & Logistics
Industrial real estate is a bright spot, driven by Israel’s growing tech/manufacturing base and e-commerce logistics needs. Demand for warehouses and distribution centers has increased with the rise of online shopping and logistics. Key hubs (e.g. around the Haifa Bay area and central region) are seeing high occupancy in modern logistics parks. In fact, industrial properties in strategic locations enjoy strong demand, supported by infrastructure upgrades and new logistics hubs. Developers and investors are active in this segment, building facilities for storage, data centers, and light industry. Rental rates for industrial space have in many cases inched upward in 2024 due to limited supply in prime areas. Overall, industrial real estate remained robust, helping offset some weakness in offices within the broader commercial sector.
Property Prices & Market Demand
Pricing Trends
Israel’s property prices have been on a long upward trajectory, and 2024 continued that pattern albeit at a moderated pace. After double-digit annual gains in 2021–2022, the market cooled in early 2023 under higher interest rates, but by 2024 prices were climbing again. The annual increase by late 2024 was around 7–8% nationally. Notably, price growth was no longer confined to second-hand homes; late 2024 saw new-construction apartment prices surging as well, thanks in part to developer financing deals. The fact that prices resumed climbing “despite record supply” of new units underscores the depth of demand in the market.
Demand Factors
Several forces are underpinning strong demand. Fundamentally, demand far outstrips housing supply in Israel, a country with fast population growth (natural and via immigration) and limited land for development. This structural shortage means many buyers chase few available homes, keeping prices elevated. Social and geopolitical factors also played a role: for instance, in late 2023 there was a surge of interest from Jews abroad seeking a safe haven in Israel amid rising global antisemitism. This influx of foreign/end-user buyers added to domestic demand. Additionally, low unemployment and relatively stable income growth have enabled Israeli families to continue purchasing homes, even as interest rates rose. On the other hand, those higher interest rates and economic uncertainty have made buyers more cautious than in the peak boom years. Many sellers and developers held off during 2023’s turbulent period rather than cut prices, leading to a brief “wait-and-see” slowdown. But with mortgage lending picking up again and war fears subsiding, pent-up demand is reasserting itself going into 2025.
Market Sentiment
Overall buyer sentiment is a mix of long-term confidence and short-term caution. Housing is still seen as a solid investment and necessity – especially given high rents, many prefer to buy if they can. Government analysts note that demand has proven “remarkably resilient,” even in the face of war and economic headwinds. Families continue to form and need housing, and cultural preferences for homeownership remain strong. Thus, while transactions might dip during shocks, house prices have been quick to stabilize or rebound afterward. Going forward, key factors like interest rate movements, security stability, and government housing initiatives will influence whether demand stays heated or moderates.
Foreign Investment
International Buyer Interest
Foreign investment in Israeli real estate has been on the rise, reflecting global interest in Israel’s economy and assets. Large international funds and investors have particularly targeted commercial properties – for example, office towers, hotels, and tech parks – drawn by Israel’s strong tech sector and stable long-term growth prospects. Foreign capital flows into commercial real estate have grown, making Israel an attractive market for international realty portfolios. In the residential segment, diaspora Jews and overseas buyers continue to purchase homes (especially in Jerusalem and Tel Aviv) as second residences or investments. In 2023–2024, Israeli agencies reported increased buying from foreign Jews seeking a foothold in Israel, spurred in part by geopolitical tensions abroad. This included Americans, Europeans, and others of Jewish heritage investing in Israeli homes as both an investment and a safe haven.
Policies on Foreign Ownership
The Israeli government generally allows foreign individuals to buy property, but there are taxation policies aimed at non-resident buyers/investors. Notably, purchase taxes for foreign or investor buyers are steep – for example, an overseas buyer faces an 8% tax on the first ~₪5.5 million of a home’s price and 10% beyond that. These high transaction taxes are intended to deter pure speculation and ensure locals aren’t priced out. New immigrants (olim), however, just received a significant break: a reform in August 2024 virtually eliminated purchase tax on a first home for new immigrants for properties up to ₪6 million. This measure is meant to encourage Aliyah and help immigrants settle, while still preventing tax-subsidized buying of multiple investment properties. There are otherwise few outright restrictions on foreign ownership (most land is leasehold from the state, but foreigners can lease/buy homes similarly to citizens).
Trends and Notable Investments
In commercial real estate, foreign institutional investors have been active – for instance, significant stakes in high-profile office developments and shopping centers have been acquired by international firms or Jewish diaspora investors. Cross-border deals in 2024 included partnerships for large office leases (e.g. Israeli firms leasing to multinational companies) and acquisitions of overseas assets by Israeli companies, illustrating a two-way flow. In residential, foreign buyers comprise a notable share in luxury segments: parts of Tel Aviv and Jerusalem see non-resident ownership in high-end projects. Market experts note that foreign demand provides an extra layer of support especially in prime neighborhoods, though the volume fluctuates with global conditions. Looking ahead, the weakening of the shekel in 2023–24 made Israeli real estate slightly cheaper for USD/EUR buyers, potentially boosting foreign interest. The government, meanwhile, balances welcoming foreign investment with guarding against speculative bubbles through its tax policy.
Rental Market
Rental Price Trends
Israel’s rental market saw renewed growth in rents during 2024 after a period of relative stagnation. Through much of 2023, rent increases were modest, but by early 2024 rents began rising more rapidly, contributing significantly to inflation. In fact, a spike in rents around Q1 2024 pushed the housing component of the Consumer Price Index up by about 5.5%. According to the Central Bureau of Statistics, the Housing Services Index (rent index) was up ~3% year-on-year by late 2024. Landlords have regained leverage to raise rents: new tenants in late 2024 paid approximately 4% more than previous tenants for the same unit on average. Even lease renewals for existing tenants saw about a 2.6% hike over the year. These figures confirm that after a brief dip, rents are climbing again, especially when a unit turns over to a new renter.
Current Rent Levels
Renting in Israel’s major cities is expensive. As of Q3 2024, the nationwide average rent for a 4-room (3-bedroom) apartment was ~₪5,200 per month, but with huge regional variation. Tel Aviv remains the priciest market – a 4-room apartment averages around ₪8,500/month (≈$2,400). Jerusalem averages about ₪5,900, and Haifa around ₪3,800 for a similar unit, while in a cheaper city like Beersheba it’s ~₪3,000. Smaller apartments (2-bedroom units) in Tel Aviv often fetch ₪6,000–7,000 monthly in popular areas. These high rent levels, especially in the center, mean renting is a significant burden for many households – in fact, rent payments on a typical apartment in central Israel can equal a monthly mortgage payment for the same unit.
Tenant Demand & Availability
Demand for rentals remains strong, in part because high purchase prices and mortgage rates force many would-be buyers to continue renting. About one-third of Israeli households rent their homes, a proportion that has been steady or rising. The supply of rental properties comes mostly from private landlords (individual investors), as Israel’s institutional rental sector is nascent. Vacancy rates for apartments are low in major cities, so competition for quality rentals is stiff. Some relief in supply came in 2023–24 as investors who bought apartments earlier have put them on the rental market. However, a government-backed long-term rental housing program struggled (with far fewer new rental units delivered than planned), meaning new rental supply isn’t keeping up. As a result, cities like Tel Aviv saw asking rents resume an upward march after a brief plateau. Tenants renewing leases have faced moderate increases, but those entering new leases often see notable jumps in rent if the previous tenant was locked in at older rates.
Rental Market Outlook
The combination of expensive home prices and population growth suggests rental demand will stay elevated. Policymakers recognize this and have aimed to encourage more long-term rental developments. While progress has been slow, the 2024 housing plan included promotion of the rental market (e.g. incentives for developers to build rental projects). If successful, that could increase supply and temper rent inflation. For now, though, renters in Israel’s big cities face rising costs and relatively few alternatives, which is a key concern for cost of living. The rental market’s tightness is feeding back into purchase demand as well – high rents motivate those who can afford it to buy homes, thereby sustaining the cycle of strong housing demand.
Government Policies & Regulations
The government has introduced several measures in recent times that impact real estate, ranging from tax changes to housing programs and regulatory tweaks. Below are key policies and regulatory trends as of 2024–2025:
Taxation Changes
Significant tax adjustments took effect in 2023–2025. Starting January 2025, VAT on real estate transactions was raised from 17% to 18%. This VAT hike applies to new home purchases and commercial property deals (not to second-hand home sales), effectively making new properties slightly more expensive. Additionally, to help finance war costs, a new surtax on high earners’ real estate gains was approved: sellers with very high incomes now pay an extra 2% on top of the 3% “wealth tax” on capital gains from property sales. This targets the wealthiest property owners. Purchase taxes remain steep for second-home buyers and foreigners (8–10% range), though a major tax break for new immigrants (olim) was enacted in 2024, virtually eliminating purchase tax on a first home up to ₪6 million. This move aims to encourage immigration and homeownership. Overall, the tax environment is slightly less favorable for investors (due to higher purchase and capital gains taxes) and somewhat more favorable for first-time buyers (especially new immigrants).
Housing Development Programs
Affordable housing and construction initiatives have been rolled out to tackle the supply crunch. In February 2024 the government approved a ₪2.5 billion housing plan. Key elements include:
- A subsidized housing program in peripheral areas with a target price of ₪800,000 for a 4-room apartment (through land subsidies), with a portion of these units allocated to army reservists.
- Increased funding for infrastructure and land tenders (₪1.1b) to expedite development.
- Addressing labor shortages in construction – exacerbated by a post-war loss of Palestinian workers – by raising the quota of foreign construction workers and training more Israeli workers.
- Encouraging urban renewal: incentivizing redevelopment of older buildings (especially to add reinforced safe rooms and increase density) to both update the housing stock and add units in central locations.
While ambitious, some of these programs face challenges – for instance, a flagship long-term rental housing initiative (Dira Le’Haskir) saw an 80% drop in successful project tenders over two years due to high interest rates and developer pullback. Moreover, the October 2023 war’s financial toll led to talk of scaling back certain housing programs in late 2024 as budget priorities shifted. Still, housing affordability remains a political issue, so we can expect continuing government involvement (via subsidies, grants, or special purchase programs) to increase supply and assist young buyers.
Regulatory and Zoning Reforms
The government has acknowledged that Israel’s planning and approval process is cumbersome, contributing to the slow housing supply growth. In 2024 there were moves to streamline bureaucracy – for example, speeding up zoning approvals and digitizing permitting processes. Some legislative updates are aimed at cutting red tape for development and encouraging quicker turnaround on building permits. Additionally, municipalities like Tel Aviv have implemented inclusionary zoning policies (e.g. requiring new projects to include a percentage of affordable units) to ensure lower-cost housing in new developments.
On the rental front, regulators debated frameworks for institutional rental projects (like allowing developers to build rental-only projects with certain incentives). While comprehensive zoning reform is still in progress, incremental steps are being taken to ease construction bottlenecks. Furthermore, public land release for housing has been prioritized – the Israel Land Authority increased the volume of land tenders for housing (though not all found bidders).
Post-War Measures
The aftermath of the 2023 conflict saw emergency measures that indirectly affect real estate. For example, the government provided some compensation to property owners in hard-hit areas and is formulating reconstruction plans for affected southern towns. There is also discussion of incentives to encourage population growth in the Negev and Galilee to diversify away from the crowded center – tying into the peripheral housing subsidies mentioned above. Additionally, interest rate policy (set by the central bank, not the government) will influence housing – as of late 2024, rates are high to combat inflation, but any future easing would stimulate real estate activity.
In summary, the regulatory climate is gradually shifting to support faster development, though developers still cite bureaucracy as a challenge.
Regional & City-Specific Trends
Real estate dynamics vary across Israel’s regions and major cities. Below are insights into key cities and emerging hotspots:
Tel Aviv
Israel’s economic hub continues to lead on property values. Tel Aviv is consistently one of the most expensive cities, with average apartment prices far above the national average. It saw some of the steepest recent price increases – for example, a 1.2% jump in just Oct–Nov 2024 and roughly 8.8% annual price growth. Demand for Tel Aviv housing is fueled by its thriving tech sector, jobs, and cultural attractions. However, affordability is a challenge: young families are often priced out of central Tel Aviv and seek housing in surrounding areas.
In the rental market, Tel Aviv’s rents (₪8,000+ for a family apartment) are the highest in Israel, reflecting both local wealth and demand from expatriates. On the commercial side, Tel Aviv’s skyline is rapidly growing with new towers (such as ToHa 2 and the Azrieli Spiral), but as noted, office occupancy is bifurcated – older office buildings in Tel Aviv have vacancies, while top-grade towers enjoy full take-up. High-end retail streets and malls in Tel Aviv (like Dizengoff and Azrieli Mall) remain prime destinations with low vacancy. Overall, Tel Aviv’s real estate market is robust, though it epitomizes the nation’s affordability concerns. The city is focusing on urban renewal (replacing old low-rise buildings with modern high-rises) and expanding transit (with light rail and an under-development metro) to improve connectivity with suburbs – which could extend the housing demand to farther locales.
Jerusalem
The capital city’s market has unique drivers. Jerusalem’s home prices are high, especially in desirable neighborhoods, yet 2024 saw unusually slow price growth in Jerusalem (only ~0.6% annual). This contrasts with the much larger jumps in other regions and may indicate that Jerusalem’s prices had plateaued after sharp rises in previous years. Demand in Jerusalem is bolstered by both locals and foreign buyers (particularly for properties in the city center and around the Old City). There was a noted increase in transactions in historic and central parts of Jerusalem in 2024, including popular western neighborhoods, suggesting renewed interest as the pandemic and security situations stabilized.
However, Jerusalem also faces constraints: limited new land and a complex political environment for development. On the rental side, Jerusalem’s rents are the second-highest in Israel (averaging ~₪5,900 for a 4-room apartment). Luxury properties in Jerusalem (e.g. near the city center or in upscale quarters like Rehavia or Talbiya) often attract international Jewish buyers, which can drive up prices in those niches. An interesting post-2023 trend is heightened demand for homes with secure rooms (bomb shelters) in Jerusalem – many older buildings lack these, so buyers are prioritizing either newer construction or urban renewal projects.
Haifa
Haifa and the northern region have emerged as surprising leaders in price growth. In fact, Haifa District saw the highest annual price increase in 2024 at about 11.7%. This surge suggests that many buyers are turning to Haifa as an affordable alternative to the center. Haifa offers relatively cheaper housing, a large metro area, and a growing tech scene (with MATAM tech park hosting major companies). Government decentralization efforts are also channeling investment to Haifa (e.g. expanding the port, building rail links), resulting in climbing demand and narrowing the price gap with the center. For example, a family apartment in Haifa might cost roughly half or two-thirds of an equivalent in Tel Aviv, a value proposition attracting young families and investors alike.
The rental market in Haifa is strong, with rents rising yet remaining far more affordable (~₪3,800 for a 4-room apartment), drawing remote workers or retirees. Additionally, the northern periphery around Haifa, including the Krayot towns and new suburbs, has seen extensive construction and steady sales. Security considerations have also played a role, as Haifa’s strong infrastructure made it preferable over smaller border towns during periods of conflict.
Experts increasingly cite Haifa as an “up-and-coming” market. As long as Tel Aviv remains out of reach for many, Haifa’s combination of urban amenities, coastline, and job opportunities – plus improved transport links like the Haifa-Tel Aviv train – will continue to drive its real estate upswing.
Emerging Hotspots
- Beersheba (Southern Israel): Transforming into a high-tech and defense industry hub, Beersheba’s Innovation District and high-tech park now host companies like IBM and Oracle, aiming to employ 10,000+ tech workers. This growth is driving rising housing demand, with prices and rents climbing as professionals relocate.
- Coastal Cities: Cities such as Netanya, Ashdod, and Ashkelon have seen increased interest. Netanya offers seaside living with new high-rise developments appealing to both Israeli buyers and French immigrant investors. Ashdod and Ashkelon, as more affordable port cities, remain popular with families seeking more space.
- Jerusalem Suburbs and the Center Region: Towns in the Central District (like Modi’in, Rehovot, Rishon LeZion) continue to grow. For example, Modi’in, equidistant between Tel Aviv and Jerusalem, has seen booming population growth and rising housing prices due to good schools and rapid absorption of new supply.
- North & Galilee: Smaller northern cities like Karmiel, Nahariya, and Afula have recorded modest growth and could become more attractive if government plans to improve Galilee infrastructure are implemented.
- Peripheral Areas: The 2024 housing plan’s focus on peripheral towns in the Negev and Galilee might boost markets in towns such as Dimona, Kiriyat Gat, and Yokne’am if subsidies and cheap land deals succeed.
Overall, a common theme is the spread of demand outward from the Tel Aviv core. While Tel Aviv and Jerusalem remain highly sought-after despite their high prices, younger families and first-time buyers are increasingly looking to emerging or peripheral areas. This trend is expected to continue into 2025 as supply constraints in the center drive price appreciation in surrounding regions.
Conclusion
Israel’s real estate market in 2024–2025 is marked by resilience and adaptation. The residential sector continues to be robust amid persistent supply challenges and high demand. The commercial segment is experiencing a recalibration with a split between soft office markets and thriving industrial/logistics and retail sectors. Government policies, from tax reforms to housing initiatives and zoning reforms, are evolving to address these challenges. Meanwhile, regional dynamics reveal that while Tel Aviv and Jerusalem maintain their allure, cities like Haifa, Beersheba, and other peripheral areas are rapidly emerging as attractive alternatives.
Sources: Recent market reports, government data, and news analyses from the Central Bureau of Statistics, major Israeli media (The Times of Israel, Jerusalem Post, Ynet), real estate agencies, and expert commentary.
