Israel to Ease REIT Rules to Boost Long-Term Rental Housing

In response to Israel’s rental crisis and sharp rises in rent, the state is recommending a package of regulatory and tax relief for developers and funds that invest in long-term rental housing. The goal is to make real estate investment more accessible for people who cannot buy a home, while also expanding the supply of apartments available for long-term lease as demand grows alongside housing prices.

Tax Authority Director Shay Aharonovich recently received the report of an interministerial committee that included representatives from the Tax Authority, the Finance Ministry’s budget division, and the Israel Securities Authority. The committee was tasked with reviewing the tax regime for Israeli real estate investment trusts, or REITs, and aligning it with international models and current market needs. REITs have operated in Israel for about 20 years, and six are active today.

The committee said REITs have not reached their full potential, partly because of regulatory barriers. It found that in 2024, Israeli REIT market value stood at $290 per capita, compared with $3,630 in the United States and $919 in Britain. Among its recommendations is allowing REITs to sell up to one third of the apartments in each project, and up to half in peripheral areas, without losing eligibility for the preferential tax rate. It also suggested examining sales to continuing landlords under future legislation, while preserving the project’s tax status.

Other proposals include canceling the current 70 percent build-out requirement for income-producing assets in the Galilee and Negev, and fixing the calculation if building rights are expanded after purchase so the 70 percent threshold is based on the original rights. The committee also wants to extend the current tax deferral period on property transferred to a REIT for shares beyond five years, and to allow REITs to buy companies through mergers and acquire indirect real estate shares through subsidiaries. The Tax Authority said the recommendations strike a balance between protecting public funds and removing legislative barriers, and said it will work with the Finance Ministry to advance the needed bills quickly. Two related amendments have already been approved, allowing REITs to hold land for development worth up to 20 percent of assets, plus other non-income-producing assets worth up to 5 percent, and extending the construction period for long-term rental projects by three years.