Residential and Commercial Property Trends
Housing prices in Israel have continued their upward trajectory, recording a year-on-year rise of roughly 7–8%. Recent figures indicate a 7.3% annual jump in average home prices, with Tel Aviv and Haifa experiencing especially strong increases. Rent levels are also inching higher across the country, feeding into affordability concerns for both buyers and renters.
Tel Aviv’s luxury real estate market has reached new highs, with units in a prominent high-rise development being offered at approximately ₪165,000 per square meter (around $46,000). This is a significant leap from the roughly ₪145,000–150,000 per sqm seen in nearby premium projects, illustrating a continued appetite for prime property in the country’s most coveted locations.
Jerusalem, meanwhile, has become a leader in new housing development, surpassing Tel Aviv in both housing starts and newly sold units. Demand in the capital is strong, fueled by local and international buyers, and other cities nationwide are likewise witnessing robust sales activity. On the commercial side, Tel Aviv has signaled major office expansions, reflecting confidence in future business demand despite no fresh data on vacancy rates.
Government Policies and Regulations
A Value Added Tax (VAT) increase from 17% to 18%, effective at the start of 2025, prompted many buyers to rush deals in December—mortgage volumes reportedly doubled in that month as buyers sought to finalize transactions before the tax hike took effect. This shows how policy changes can directly affect real estate market behavior.
Monetary policy has also played a role. The Bank of Israel announced on February 24 that it would keep its benchmark interest rate at 4.5% for the ninth consecutive time, citing a moderate economic recovery and inflation around 3.8%, above the 1–3% target range. Officials suggested that if inflation settles within the target band by midyear, they might consider cutting rates later in 2025. In the meantime, higher borrowing costs continue to impact affordability.
In addition, a Knesset committee is working on legislation to define and fund rehabilitation for areas affected by the October 2023 conflict near the Gaza border. Several billion shekels in assistance have been delayed due to uncertainty about the boundaries of the aid zone, and clarifying these parameters is now seen as crucial to restarting redevelopment in the south.
Regulatory considerations also continue to shape the market. Some major projects have been influenced by stricter safety requirements, such as multiple access points for new metro stations. These debates sometimes stall or modify large-scale developments, underscoring the regulatory impact on both project timelines and designs.
Major Real Estate Transactions and Investments
Across Israel, recent property deals in places like Kfar Saba, Even Yehuda, Rishon Lezion, Hadera, and Haifa show ongoing demand for both sales and rentals, extending well beyond Tel Aviv and Jerusalem. In the luxury market, investors remain willing to purchase high-end properties at premium prices. One newly launched project has attracted elite buyers with record-breaking price tags, indicating steadfast confidence in the Israeli property sector’s top tier.
Foreign investors, too, have maintained strong interest in Israeli real estate, despite challenges. Many see property ownership here as a long-term stable asset, and recent conflicts appear not to have significantly deterred them. In some cases, the sense of recovery and resilience has actually spurred additional buyer interest, especially for premium and holiday-home segments.
Market Forecasts and Economic Influences
With interest rates holding at 4.5%, mortgage costs will likely remain high in the near term, affecting first-time buyers and those with tighter budgets. However, if inflation moderates as expected, potential rate cuts could boost the market in the second half of the year.
Rising construction expenses—up about 5.3% over the last year—have also contributed to higher overall housing costs. Policymakers expect inflation to slow in the coming months, which could provide some relief for both developers and consumers by stabilizing price growth.
Economically, experts predict Israel will bounce back from an estimated 1% growth in 2024 (due to wartime disruptions) to around 4% in 2025, supporting a more positive outlook for real estate. Some see the technology sector, traditionally a key driver of well-paid jobs, as a stabilizing force, while others caution that high prices and interest rates might dampen transaction volumes. Questions loom over whether the market will continue climbing or reach a plateau as the year progresses.
New Developments and Urban Planning
Tel Aviv is on the verge of approving an ambitious master plan that would add over 11 million square meters of housing space and around 6 million square meters of office space in the coming years. The plan includes skyscrapers up to 80 floors and aims to tackle housing shortages while expanding the city’s commercial core. Although it could eventually help rein in prices by expanding supply, some skeptics point out that it might take years before new units become available.
In the nearer term, Tel Aviv has launched a new affordable-rental project on Carlebach Street to ease some of the housing burden on middle-income residents. Meanwhile, Jerusalem’s building boom continues unabated, with both private and public initiatives adding homes at a rapid pace to accommodate the capital’s growing population.
One challenge to metropolitan expansion is the long-planned Tel Aviv Metro, which has hit a snag over station entrance requirements. Debate persists about whether each station should have one or two main entrances, delaying construction tenders and, by extension, real estate developments that tie into the project’s transit hubs. Resolving this will be essential for unlocking opportunities above and around future stations.
Market Drivers and Future Outlook
The recent conflict’s aftermath casts a shadow but also reveals the sector’s resilience. While some projects paused temporarily, buyer confidence appears to have rebounded alongside general optimism about Israel’s economic recovery. Government-backed reconstruction initiatives in affected regions are expected to speed up once funding is released.
Investor and buyer sentiment remains pivotal. Many Israelis continue to see real estate as a reliable investment, and foreign demand endures despite global uncertainties. Still, high interest rates and soaring prices have prompted caution among some market participants. Analysts are closely watching the next few months to see whether price hikes cool off or whether ongoing demand intensifies competition even further.
Overall, the Israeli real estate market remains on an upward path, buoyed by strong demand and various new construction initiatives. Policymakers face the delicate task of ensuring affordability while maintaining growth. With significant developments, infrastructure projects, and policy debates all converging, the market’s direction through 2025 will hinge on interest rates, inflation trends, and the pace at which new units enter the pipeline. Buyers and investors alike are watching closely to determine if prices will continue to rise or finally stabilize in the months ahead.
