Israel Securities Authority Mandates New Disclosure Rules for Real Estate Firms

The Israel Securities Authority (ISA) has issued new guidelines aimed at increasing transparency for investors in public real estate companies, particularly concerning "20/80" sales schemes. These schemes allow developers to report a sale immediately but receive only 20% of the payment upfront, with the remainder due years later upon apartment delivery, while construction and financing costs continue to accrue. The ISA's new disclosure guide for real estate developers' prospectuses seeks to clarify the actual cash flow into companies from these reported sales, the cost of financing such incentives, and the implications of potential deal cancellations.

The guidelines require companies to disclose the number and value of apartments sold through financing arrangements like deferred payments or developer loans, and their impact on the company's cash flow. For developer loans, disclosure will also include financing expenses already incurred. This aims to help investors distinguish between sales with significant immediate payment and those where most funds will arrive much later.

Furthermore, the ISA is demanding greater transparency regarding deal cancellations. Companies must report the number of canceled sales contracts. For significant projects where cancellations exceed 10% of available units, detailed information on the number and value of canceled deals is required, even if the units were later resold. The guide also addresses expected profitability and surplus funds, pushing for clearer presentation of the gap between projected accounting profit and actual cash available to the company, including required equity, financing costs, and expected surplus release timing.

Developers will need to provide annual projections for income, receipts, and expected surpluses for the next four years. Significant changes of 20% or more in projected gross profit or surplus compared to the previous reporting year must be explained, detailing reasons like rising construction costs or changes in sale prices. The guidelines also cover urban renewal projects, requiring disclosure on tenant agreements, planning status, timelines, and remaining conditions, and will differentiate between residential, commercial, and office components in mixed-use projects.

ISA Chairman Spi Shinger stated that the real estate sector's complexity necessitates clear information for investors to assess risks and opportunities. He emphasized that the guide provides a framework for clear and comparable disclosure, though it is not a set of mandatory regulations but rather a tool to highlight the ISA's disclosure priorities during prospectus reviews. The guidelines will apply to draft prospectuses submitted for review based on financial statements for 2026 and onwards, marking the first step in a broader initiative to develop industry-specific disclosure guides.