Israeli Developers Rent Out Unsold Apartments Amid Market Slowdown

Facing a sluggish housing market and difficulty selling new apartments, Israeli developers are increasingly opting to rent out unsold units rather than lower prices. This strategy allows them to generate ongoing income, avoid damaging project reputation by slashing prices, and wait for market conditions to improve. Companies are converting apartments originally intended for sale into rental units, offering short-term leases or longer-term arrangements, sometimes with an option for the tenant to purchase later.

This trend is exemplified by Duna's project in Modi'in, where 20 unsold apartments are being rented for two years before potentially returning to the sales market. In Bat Yam, the Panorama North project is renting out 78 of its 113 apartments for 10 years under a capital investment encouragement law. While direct rental listings can be hard to find, tenants have successfully located these units through online platforms and social media groups.

Experts note that renting provides developers with crucial "breathing room," enabling them to maintain official price lists and avoid devaluing their projects, which could also negatively impact bank valuations. This approach is particularly viable for developers with strong financial backing who can afford to wait for a market recovery. Additionally, renting out units can offer tax benefits under specific investment laws and helps identify and fix any construction defects during the warranty period.

While renting offers advantages like steady cash flow and avoiding price wars, it also delays the financial closure of projects and the realization of profits, as developers continue to incur financing costs. For tenants, renting directly from developers offers a more professional and reliable experience compared to dealing with individual landlords, with consistent rent policies and prompt maintenance.

An alternative strategy for developers with excess inventory is selling large blocks of apartments to Real Estate Investment Trusts (REITs). While this provides immediate certainty and allows for project financing closure, it typically involves significant price discounts compared to individual sales.