Israel's Banking Supervisor Considers New Restrictions on Mortgage Subsidies

Israel's Supervisor of Banks, Daniel Hacham, is reportedly considering new measures to curb contractor sales tactics and financing benefits, as a temporary order limiting these practices is set to expire at the end of December. The original order, implemented in March, restricted contractors to selling only 10% of their apartments through contractor loans, aiming to cool down the housing market. However, reports emerged that contractors circumvented these rules by offering mortgage subsidies and other benefits, effectively allowing almost anyone to secure loans and contributing to a rise in housing prices in 2024.

With the temporary order's expiration, Hacham faces a decision on whether to extend it or let it lapse. Sources indicate that the Supervisor of Banks is leaning towards issuing an update rather than reverting to the previous situation. While contractor sales will likely remain restricted, the specific limitations may change. The Supervisor is also reportedly looking into other financing benefits, such as mortgage subsidies, and creative sales methods employed by developers.

Bank of Israel's initial concerns stemmed from fears that buyers with low initial down payments (as little as 5-7%) might be unable to complete their purchases. Additionally, the bank was wary of investors seeking quick property flips, a strategy that has become riskier with stagnant housing prices. The Supervisor may also address financing schemes like those seen from Gindi, allowing deferred payments, or Aviv Melisron's 0% down payment offers, which often involve leveraging the buyer's existing property.

Real estate companies cautiously anticipate that the Supervisor of Banks will not entirely eliminate financing benefits, and they are already exploring new strategies to attract buyers. The key question remains how Hacham will implement these potential new regulations.