The Current Challenges Facing the Israeli Real Estate Market

The Israeli real estate market has recently been riddled with uncertainty, making it increasingly difficult for buyers and sellers to navigate. This post explores the real estate market’s challenges (whether residential or commercial) that Israel is currently facing.

Rising Interest
One of the significant challenges facing the Israeli real estate market is the rising interest rates. The consumer price index in Israel has experienced a considerable increase of 5.2% over the past 12 months, with high inflation affecting various components of the CPI. The rise in interest rates has made mortgages more expensive for buyers, ultimately affecting the demand for housing and the overall real estate market.

Steep Real Estate Prices
Israel is known to have some of the highest home prices globally, making it challenging for buyers to enter the market. The high prices are due to various factors such as supply and demand, land scarcity, and government policies. According to the latest available data, Israel’s real estate market surpassed expectations in 2022, with home prices experiencing a remarkable 20.3% year-on-year increase.

Cost of Construction
The construction cost is a significant challenge facing the Israeli real estate market. The high cost of labor, materials, and regulations contribute to the increased construction cost. According to the Association of Contractors and Builders in Israel, construction constitutes the most significant portion of a home’s cost in Israel, accounting for approximately 35% of the selling price. This challenge affects the affordability of housing in the market.

“Red” Tape in the Israeli Market
Navigating the legal and administrative processes involved in buying or selling property in Israel is challenging. The bureaucracy and regulations in the Israeli real estate market make it difficult for buyers and sellers to transact with ease. Hanan Friedman, the CEO of Israeli Bank Leumi, believes that the housing prices won’t decrease until the bureaucracy related to planning and construction, “The solution depends on many factors, but the Bank of Israel can’t solve the crisis with monetary tools alone,” he said regarding the housing crisis.

“We must eliminate the tangle of bureaucracy. Until orderly legislation in planning and construction, the long-standing gap between supply and demand won’t close, and prices will stay high,” he said.

Local Property Tax Funds
Israel’s local property tax system works differently than other countries, affecting the real estate market. One of the obstacles to resolving the housing crisis is a distortion in the tax system that creates a negative incentive for municipalities to construct apartments. This is widely considered detrimental to the market. Different types of property taxes and their impact on buyers and sellers make comprehending the tax system challenging.

Strict Foreign Fund Policy
The Israeli real estate market faces challenges with its strict foreign fund policy. The government has imposed limitations and regulations that make it difficult for foreign buyers and investors to invest in the real estate industry in Israel.

Governmental Instability 
According to the experts, Israelis are only willing to purchase real estate once they have a clear picture of the court overhaul. The instability affects foreign investment and creates uncertainty that discourages buyers and investors from entering the market; real estate purchases by foreign buyers have dropped by 25 percent compared to the previous year. The unstable political climate can also cause changes in regulations and policies, making it challenging for buyers and investors to predict the market’s future.

It’s More Important Than Ever to Receive Professional Assistance
The Israeli real estate market is currently facing several challenges, and it’s more important than ever to work with knowledgeable and experienced agents who understand the current economic climate and the real estate market. At Gov Ari Real Estate Agency, our agents are familiar with the market’s difficulties and provide adequate assistance to anyone looking to buy or sell property in Israel. Contact us today for professional help in navigating the Israeli real estate market.