Housing Prices and Market Trends
Israel’s housing market continues its upward trajectory despite recent economic and geopolitical challenges. Home prices have risen 0.6% in the past month and 7.8% year-over-year, showing resilience even amid a year marked by conflict. Notably, Tel Aviv saw the highest monthly increase of 1.2%, while Haifa led in annual growth with 11.7%. Experts predict further gains in 2025 as stability returns post-ceasefire.
Rental prices have also climbed, with new tenants paying 4% more than their predecessors and renewed leases costing 2.6% more on average. This has contributed to a 3% rise in the national rent index, intensifying concerns over affordability. Meanwhile, home sales have rebounded, with 7,150 apartments sold in November 2024—a 73% jump from the previous month and an 8.5% increase from November 2022.
The mortgage market saw a surge in December 2024, reaching an all-time high of ₪13.8 billion in new loans as buyers rushed to beat tax hikes. However, mortgage volumes cooled in January, dropping to ₪7.3 billion, which, while 50% below December’s peak, still represents a 30% increase from January 2024.
New Developments and Construction
The government is pushing forward with housing projects, including a tender for 974 new homes in the Efrat settlement, set to expand the area’s population by 40%. However, this expansion has drawn international scrutiny due to its implications for regional stability.
In the commercial sector, the Hamat Group is developing a 25,000 m² logistics center in Ashdod, while Kardan Israel Ltd. is planning a major data center campus in Shoham with a ₪300 million investment. These projects highlight investor confidence in the industrial and tech real estate segments.
However, the construction sector faces challenges, particularly with labor shortages following the restriction on West Bank Palestinian workers. Rising costs for materials like cement and steel have slowed progress, leading to a record high of 70,000 unsold new apartments as of late 2024. Authorities are exploring solutions such as bringing in foreign labor to mitigate the crisis.
Government Policy and Tax Adjustments
The start of 2025 brought key fiscal changes. The VAT increase from 17% to 18% has slightly raised the cost of new homes. Additionally, municipal property taxes (arnona) have surged by 5.2%, the largest increase in 17 years, with Jerusalem homeowners experiencing spikes of 30-70%. The capital gains “wealth tax”, imposing an additional 2% surtax on high-value real estate transactions, is expected to generate state revenue without deterring average home sellers.
Conversely, policies supporting homebuyers include tax exemptions for new immigrants (olim), who now enjoy reduced purchase tax on homes valued up to ₪6 million. Policymakers are also discussing broader tax cuts for young and first-time buyers to counter rising home costs.
Investment and Market Trends
Foreign demand for Israeli real estate is surging, particularly among diaspora Jews seeking long-term investments. Mortgage data indicate that foreign-buyer loan volumes have more than doubled in recent months. Meanwhile, investor confidence remains stable, with notable commercial transactions, including Medipower’s $37.5 million acquisition of a retail complex in New Jersey and Hertz Properties’ sale of an office complex in Texas for $64 million.
The commercial real estate sector is adjusting to post-pandemic and post-war conditions, with high interest in logistics hubs and data centers. Retail and office investments remain selective, with firms focusing on strategic acquisitions and portfolio rebalancing.
Economic Outlook and Future Considerations
The Bank of Israel is expected to maintain its 4.5% interest rate in response to January’s 3.8% inflation rate. While tax hikes contributed to price increases, analysts predict inflation will stabilize, potentially leading to rate cuts later in the year. Any reduction in interest rates could fuel renewed demand in the housing market.
Following the October-November 2024 conflict, economic recovery efforts are underway, particularly in northern and southern Israel. While the war initially slowed construction, investor confidence has rebounded, driven by geopolitical stability and government-backed rebuilding initiatives.
Political tensions, both domestically and internationally, are influencing real estate trends. Discontent over rising property taxes has sparked protests in Jerusalem, while an Israeli real estate expo in Brooklyn faced disruptions due to geopolitical demonstrations. Despite these challenges, investor sentiment remains optimistic, with strong demand persisting across residential and commercial sectors.
Conclusion
Israel’s real estate market continues to exhibit resilience and long-term growth potential. While affordability remains a key issue, government initiatives, foreign investments, and infrastructure developments are shaping the sector’s trajectory. Market observers expect sustained activity throughout 2025, though the balance between rising prices and economic pressures will determine the overall pace of growth.
