Israel's Rental Market Faces Shortage Amid High Interest Rates

Israel's rental market is experiencing significant upheaval, primarily driven by high interest rates that are eroding developer profits. With developers earning only a 2.5% annual return on rental properties, even those indexed to inflation, more attractive investment avenues are emerging. Rising commodity prices and the impact of high leverage on profits further diminish the economic viability of rental investments compared to safer options.

Adding to the strain is the underperformance of 'DiRA LeHaskir', the government-owned company tasked with developing the long-term rental market. The company's mandate includes promoting long-term rental projects and collaborating with the Israel Land Authority to release land for future development. However, the Planning Administration, responsible for long-term land planning, has not sufficiently provided available land. Consequently, 'DiRA LeHaskir' and the Israel Land Authority have struggled to issue tenders that would eventually lead to new rental units.

Data from 'DiRA LeHaskir' indicates that immediately available rental units are scarce and concentrated in a few projects, mostly in peripheral areas. The cities of Lod, Ashdod, Be'er Yaakov, Yokneam, and Jerusalem are among the few locations with remaining units for immediate rent. It's noted that 'DiRA LeHaskir's' data may not always be up-to-date.

Specific projects with available units include those by Freshkovsky and Shikun & Binui in Lod's Ben Shemen neighborhood, and Rami Sheviro apartments in Kiryat Lakish Bet, Ashdod. In Yokneam, a 4-room apartment in the 'Sha'ar HaGei' project by Epi Capital and Shoval is reportedly available for a low rent of 4,000 shekels. However, a project by Megurit in Be'er Yaakov is reportedly fully leased.

Several projects are under construction but not yet on the market. These include a Shikun & Binui project in Tel Aviv's Ta'asiya HaShalom, set for marketing next year, and a Rami Sheviro project in Haifa's Mabo'ot Daromiyim, also slated for marketing next year. Additionally, Y.H Demari and Acro are building separate projects in Petah Tikva's Sirkin neighborhood.