Resilience and Renewal: The Promise of Israeli Residential Real Estate

The Land Where Demand Consistently Outpaces Supply

The Israeli housing market shifted from a surplus of 50,000 units in 1995 to a deficit of 160,000 units by 2022. This change is primarily due to the 2008 global financial crisis, which slowed new construction projects, Israel’s exceptional population growth, and continuous immigration. These factors have created immense pressure on the housing market, struggling to meet the rapidly growing demand.

Contrary to what many may think, demand for housing has continued to grow since October 7th. Driven by global anti-Semitism and a desire for security, there has been increasing interest in Israeli real estate from foreign buyers who see Israel as a haven and are keen to invest in its market. This influx of foreign capital adds another layer of demand and drives up property prices.

As a result, the number of completed housing units can’t keep pace with population growth. While persistent demand for housing keeps pushing prices upward, Israel is proving to be a resilient market where the fundamental demand-supply imbalance overrides the temporary setbacks caused by political and economic fluctuations.

“Over the last eight months, foreign buyers have made much quicker decisions to buy property in Israel. In the past, people were contemplating and planning, but in the last six to eight months, they have been decisively purchasing properties here in Israel.”

Julian Nathan, Managing Director Hold Sales & Marketing, Hold Real Estate

The Land of Plenty – Government Initiatives to Boost Supply

“The government, the municipalities, the developers – the whole ecosystem of residential real estate in Israel is doing everything to supply the demand.”
Daniela Paz-Erez, CEO & Founder of Paz Group

To address the housing shortage, the Israeli government is implementing several initiatives:

Land Rezoning: In 2010, the government set a target to zone 60,000 units annually, which was later increased to 120,000 units per year – a goal they are reaching. Special committees, like the National Committee for Residential Zoning, have reduced zoning approval times from five years to about one year, significantly accelerating the availability of land for construction.
Urban Renewal (Pinuy Binuy): Redeveloping old buildings to enhance safety and increase housing supply.
Rezoning Military Bases: Transforming former military bases into residential areas.
Fixed Land Price Tenders and Buyer’s Price Plan: These measures aim to make housing more affordable by reducing land costs and offering discounted units through lotteries.
Buyer’s Price Plan and Lottery—The Buyer’s Price Plan involves a tender process in which the government sets a fixed land price, and developers bid to offer the lowest apartment prices.

The Future Is Bright…

Despite the current challenges, the government’s proactive measures and the country’s continuous growth suggest substantial investment opportunities in the Israeli residential market.

“If we look at Israel today compared to 1948, we can see how much we’ve grown. Our population has increased tenfold to 9 million people, and we have a high birth rate.

– Daniela Paz-Erez, CEO & Founder of Paz Group

Tips for Foreign Buyers Investing in Israeli Real Estate

Flexible Loan Arrangements

Foreign buyers can benefit from flexible loan arrangements, with Israeli banks offering up to 50% loan-to-value for property purchases.

High Demand Over the Next 10-20 Years

The demand for housing in Israel is expected to remain strong over the next 10-20 years, driven by population growth and supply constraints. This makes the market dynamic and full of opportunities.

Focus on Long-Term Capital Appreciation

Investment Return on Rental (RoR) in Israel is relatively low – typically ranging between 2.5% to 3.5%. Buyers should focus on the potential for long-term capital appreciation in residential real estate rather than on short-term yields.

“Unlike the American Market, where there are higher yields. In the Israeli Market – It’s all about capital appreciation ” Ari Shapiro, CEO Hold Real Estate