Israel's Real Estate Market Undergoes Dramatic Shift Three Years Post-October 7

The Israeli real estate market experienced significant disruption in the three months following the October 7th attacks. Construction sites were halted, Palestinian workers were barred from entering Israel, leading to delays and legal disputes. The market, already sensitive to uncertainty and facing rising interest rates, was further impacted by the war, which deterred buyers and investors. Bank of Israel data indicates that in early stages of the war, approximately 143,000 residents were evacuated by government decision, with another 100,000 evacuating independently.

By 2024, the market began adapting to the new reality. Increased quotas for foreign workers and the return of Israeli laborers to construction sites gradually resumed activity. Bank of Israel reported around 65,500 new construction starts, an increase in transactions, and a 7.7% rise in apartment prices. However, by 2025, while employment in the sector recovered, the trauma of October 7th, coupled with social media pressure for lower housing prices and bankruptcies among infrastructure contractors, shifted the market's atmosphere.

Sagi Lenczner, CEO of Yanuv, highlighted the profound changes in project management due to labor shortages, supply chain disruptions, increased input costs, and extended execution times. He stated that the industry had to rebuild work methods, incorporating greater flexibility and larger safety margins, and making faster decisions, indicating the market has not returned to its old routine but learned to operate within a new reality.

Developers introduced various financing schemes, such as 20/80 and 10/90 deals and subsidized mortgages, to attract hesitant buyers, bypassing Bank of Israel regulations. These promotions, while boosting sales, also posed risks of buyers being unable to complete payments. Bank of Israel cautioned against this and imposed restrictions in March 2025. By the end of 2025, construction progress outpaced sales in about 44% of residential projects within the five largest banking groups.

Real estate appraiser Gali Apple Castel noted a significant increase in demand for apartments with protected rooms (Mamads) in the rental market during the war, especially after the May 2024 Iranian missile attack. While this effect was more moderate and temporary in the sales market, security concerns became a key factor, with buyers willing to compromise on other apartment features during escalations. However, as security stabilized, demand for non-protected apartments gradually returned due to price differences.

The emphasis on protection has also influenced urban renewal. Rafi Kashkash, VP of Development at Cyrus Capital, views urban renewal not just as a means to increase housing supply but as crucial for national resilience, especially after facing prolonged missile and drone attacks. The Knesset approved the War Damage Rehabilitation Law in March 2026, aiming to expedite projects in war-affected areas. However, real estate expert Ido Shemueli points out that the planning and construction system remains ill-equipped for rapid emergency responses, citing delays in areas like Bat Yam and the need for a unified coordinating body.

As of September 2026, Bank of Israel data shows a modest recovery in transactions in May and June, with a minor 1.5% annual decrease in apartment prices. The market awaits further interest rate reductions, with the current rate at 3.25%, to determine when a new equilibrium will be reached.