War times opportunites in the housing market

Israel has always faced challenges throughout its history, but the past 16 months have been among the most difficult in its history. The events of October 7, 2023, are well-documented, and the consequences immense and wide reaching but the full economic impact is still unfolding. Tourism has taken a significant hit, with restaurants and hotels vastly affected, and airline cancellations reducing incoming travel. The broader economy is also feeling the strain, with reduced investments in the high-tech sector and many individuals spending extended periods in reserve duty (Miluim).

The real estate market is showing unusual patterns. While local buyers remain active, they are focusing on less conventional areas, and international buyers are largely staying on the sidelines, waiting for the “right” time to invest. For locals, the current market conditions have enabled deals that would have been unattainable 18 months ago. Payment terms have become more flexible, with options like 10/90 or 20/80 agreements now possible. Other incentives include no indexation, developer loans, enhanced finishes, the ability to sell before completion, furniture packages, and other benefits that were previously unavailable.

These incentives have masked the true state of the market. Prices have not dropped in real terms, but they are being artificially sustained by developers’ flexibility.
Once the situation stabilizes, I anticipate that many of these benefits will be withdrawn. Developers will likely adapt their models, possibly phasing out indexation, as this pricing mechanism is unpredictable and challenging to justify—especially for apartments with a delivery timeline of four to five years. The Bank of Israel has already raised concerns about the impact of these practices on both developers and banks, prompting efforts to restrict certain deals.

When the war ends (let’s hope soon), the market will likely see increased activity. Years of undersupply in the housing market will drive prices upward.
Currency fluctuations are another important factor. Currently, all major international currencies are trading at a premium against the shekel, reflecting the risks associated with the ongoing war. This has resulted in an estimated 10-15% devaluation of the shekel. Many analysts expect the currency to recover once the conflict subsides or reaches a calmer phase.

Market activity has shifted geographically. Tel Aviv, Herzliya, and central areas have experienced a significant decline in transactions, while regions like Jerusalem, Beit Shemesh, Netanya (particularly Ir Yamim), and Karmei Gat have seen increased interest. Many buyers are seeking a “safety net” or “bolt hole,” motivated by concerns that their home countries have changed since October 7 and may not return to what they once knew. While Aliyah may not currently be an option for various reasons, there is a strong desire among diaspora Jews to invest in Israel as an emergency option. There has also been a rise in parents buying apartments close to Universities as they realize going to university in Israel to be a choice preferable to going to many traditional universities in light of the activities on campus in the last 16 months.

I believe that developers who have had a difficult few years are seeing light at the end of the tunnel. They see the market starting to return to a sense of normality that has not been seen for 2 or 3 years. I anticipate that by the end of the first quarter developers will feel increased confidence and therefore begin to try and raise prices and remove some of the incentives and terms they have been offering of late to increase activity. There is a window that is about to close.

Israel has been through significant challenges and has come through most of them stronger, it remains a more secure place than it has for many years and the outlook is positive. Israel will survive its challenges, the rest of the world needs it to. How that impacts on Diaspora Jewry is still a question. Jews will always have a place to call home. The challenge is how will the property market have changed by the time many make up their mind!