Billions in Non-Bank Real Estate Loans Face Default or Restructuring

Over 5 billion shekels (approximately $1.35 billion USD) of credit extended by non-bank entities to the Israeli real estate sector are currently in default or undergoing debt restructuring, according to a report by the Capital Markets Authority for 2025. This represents about 13% of the total credit portfolio of approximately 40 billion shekels ($10.8 billion USD) for the sector, reflecting ongoing pressure on developers and contractors.

The data, accurate as of 2025, likely worsened this year due to the continued stagnation in the market. Of the problematic debt, over 3 billion shekels ($810 million USD) are in debt arrangements and restructurings, while 1.53 billion shekels ($413 million USD) are more than 90 days overdue. An additional 386 million shekels ($104 million USD) are 31-90 days overdue, and 138 million shekels ($37 million USD) are up to a month overdue.

Stricter lending conditions from banks in recent years pushed contractors and developers towards non-bank financing, which is supervised by the Capital Markets Authority. These non-bank lenders have increasingly filled the gap left by banks, even in riskier loans where repayment depends on project completion and sales. The non-bank credit exposure to the real estate sector reached 40 billion shekels ($10.8 billion USD) in 2025, with 19.7 billion shekels ($5.3 billion USD) in direct financing for developers and projects.

Within the residential sector, non-bank credit reached 10.5 billion shekels ($2.8 billion USD) in 2025. Only about 2.5 billion shekels ($675 million USD) of this was for first-time or additional home purchases. The report highlights that high interest rates, labor shortages, construction delays, and buyer incentives have eroded developer profits and lender cushions. Delays in apartment delivery and breaches of financial covenants can freeze a developer's right to receive project surpluses.

The Authority explained that debt arrangements currently prevent outright defaults and forced asset seizures. However, these restructurings merely postpone payments and do not necessarily improve borrowers' repayment capacity. The extensive use of these arrangements necessitates a more conservative provisioning policy from lenders. The data reveals a layer of risk not immediately apparent from delinquency figures alone, raising questions about how many of these restructured debts will ultimately be repaid versus merely delaying a crisis.