Overview
As of March 24, 2025, Israel’s real estate market continues to demonstrate strong long-term potential despite a temporary slowdown in residential property sales and growing inventory. Recent regulatory interventions, ambitious urban renewal projects, robust commercial sector performance, and significant foreign and domestic investments signal ongoing optimism and stability in Israel’s property landscape.
Residential Market Shows Temporary Slowdown
Decline in Home Sales and Rising Inventory
Israel’s housing market, historically strong due to sustained demand, has recently seen a noticeable downturn. In January 2025, home sales fell to around 7,250 units, representing one of the lowest monthly totals in over ten years. This decline follows an earlier surge in late 2024 when buyers accelerated purchases to avoid a scheduled Value-Added Tax (VAT) increase.
Currently, about 79,500 new apartments remain unsold nationwide, amounting to nearly 18 months of housing supply. Major urban areas, particularly Tel Aviv (approximately 8,750 unsold units) and Jerusalem (about 7,850), contribute significantly to this growing surplus.
High Prices Persist Despite Softening Demand
Despite the recent downturn in sales, housing prices have remained relatively high, increasing around 6-7% annually. This continued price growth has resulted in significant affordability challenges for first-time buyers, especially in high-demand regions like Tel Aviv, where average home prices surpass ₪4.1 million, compared to a national average approaching ₪2.75 million.
Mortgage affordability has also deteriorated, influenced by elevated interest rates. Rents have similarly climbed, squeezing households that increasingly find purchasing a home financially difficult.
Government Interventions Aim for Market Stability
Bank of Israel Curbs Risky Financing
In response to financial risks emerging from creative financing arrangements, Israel’s central bank recently introduced new regulations limiting deferred payment schemes, often referred to as “buy now, pay later” offers. Such offers allowed buyers to postpone a significant portion of their payments until the completion of a property, creating potential financial risks. Now, banks providing loans for developers must hold increased reserves if over 25% of payments are deferred, effectively discouraging risky practices.
Balloon loans—large lump-sum payments due at the end of loan periods—are now capped at 10% of monthly new home loans issued by banks. These measures are intended to foster long-term financial stability and protect buyers from accumulating unsustainable debt.
Tax Adjustments and Economic Reforms
Starting January 2025, VAT increased slightly from 17% to 18%, influencing buyer decisions in late 2024. Furthermore, property tax brackets and capital gains tax exemptions have been frozen through 2027, indirectly raising taxes as property values increase with inflation. These policy shifts aim to reduce speculative investments and stabilize market prices while bolstering government revenues post-conflict.
Commercial Real Estate Sector Thriving
Office Market Facing Temporary Oversupply
The office market, particularly in newer developments, faces high vacancy rates due partly to cautious corporate leasing behavior following domestic political uncertainties and geopolitical concerns. For instance, prominent new office complexes in Petah Tikva and Jerusalem are experiencing relatively low occupancy rates, approximately 45% and below 40%, respectively.
However, established office locations maintain steady occupancy, indicating market conditions are selective rather than universally challenging. Experts expect leasing activity to rebound once corporate confidence fully recovers from temporary disruptions.
Retail Sector Booms Amid Record Activity
Contrasting the office market, retail real estate has flourished recently. The newly opened BIG Fashion Glilot mall, located north of Tel Aviv, set national records by attracting over 155,000 visitors during its opening weekend. Retailers within the complex reported exceptional sales volumes, reflecting strong consumer spending and confidence in the retail segment. Infrastructure improvements to manage increased visitor traffic are being planned, highlighting the sector’s growth potential.
Significant Real Estate Transactions Reflect Market Confidence
Several high-profile deals underscore continued investor confidence in Israel’s real estate market. Most notably, cybersecurity leader Check Point Software partnered with real estate giant Israel Canada to acquire prime land in Tel Aviv’s Bitzaron area for roughly ₪830 million. The site will host a mixed-use development featuring approximately 315 residential units and 61,000 square meters of office space.
Urban renewal initiatives also continue, especially in cities like Haifa, where thousands of new housing units will replace outdated infrastructure, further enhancing residential availability and urban aesthetics.
Rental Market Gains Government Attention
With homeownership increasingly difficult for young families, the Israeli government is now promoting longer-term rental contracts. Current rental agreements typically last one year, offering little stability for tenants. Proposed reforms may offer tax incentives to landlords who provide longer leases (five to ten years), aiming to create a stable rental market similar to European models.
Economic Indicators and Outlook Remain Favorable
Stable Interest Rates Amid Elevated Inflation
Israel’s central bank maintains a stable benchmark interest rate around 4.5%, historically high but unchanged over recent policy meetings. Inflation currently hovers around 3.6%, slightly above the preferred range but expected to normalize by year-end. Interest rates might decrease later in 2025 if inflation consistently declines, easing mortgage affordability challenges.
Economic Recovery Supports Long-term Confidence
Following disruptions from the 2023 conflict, Israel’s economy has steadily recovered. Gross Domestic Product (GDP) growth is forecasted around 4.1% for 2025, driven by stronger domestic consumption and renewed investor confidence following policy clarity from recent budget approvals. Geopolitical risks remain a potential factor influencing investor sentiment but have not significantly derailed economic optimism.
Positive Long-term Prospects Despite Short-term Hurdles
Israel’s real estate market remains fundamentally strong, supported by robust economic indicators, committed government intervention, and ongoing investment in infrastructure and urban renewal. While the residential market currently faces temporary pressures, long-term growth prospects are solid, reinforced by a stable commercial property sector, investor confidence, and strategic government initiatives aimed at enhancing affordability and market sustainability.
