Bank of Israel Weighs New Measures as Contractor Financing Deals Surge
Translated & summarized from Globes by baba
Contractor financing deals for homebuyers are surging in Israel, with 45% of September sales including such benefits, nearing pre-restriction levels. The Bank of Israel, concerned about risks to buyers, developers, and the banking system, is reviewing its temporary directive, which expires in about six weeks. Despite the incentives, apartment sales remain stagnant, and experts caution about amplified financial risks for all parties involved.
The story in 6 lines · by baba
- 45% of Israeli apartments sold by contractors in September included financing benefits, a significant increase.
- The Bank of Israel's temporary directive limiting these deals is set to expire in about six weeks.
- New data shows a resurgence of contractor financing deals, reaching levels seen before March 2025 restrictions.
- Despite increased incentives, apartment sales volume has remained stagnant nationwide.
- Experts warn of amplified risks for buyers, developers, and the banking system due to aggressive financing.
- The Bank of Israel is actively monitoring the situation and considering regulatory updates.
With a temporary directive from the Bank of Israel limiting contractor financing deals for homebuyers set to expire in about six weeks, new data reveals a significant resurgence of these incentives. In September, 45% of apartments sold by contractors included financing benefits, the highest rate since March 2025 when the restrictions took effect. This trend has raised questions about whether the current regulations are still adequate to mitigate the risks the Bank of Israel aimed to address.
The Bank of Israel initially imposed these restrictions in March 2025 due to concerns about expanding financing offers, which they feared could lead to buyers entering transactions with low down payments and deferred balances, potentially lacking the ability to complete purchases later. This also posed risks to the banking system and developer financing. The directive included a 150% capital allocation for projects with over 40% of deals involving significant payment deferrals and limited balloon loans and subsidized contractor financing to 10% of residential mortgage performance.
Despite the return of financing deals, buyer activity has not significantly increased. In September, contractors sold approximately 1,800 apartments in the free market nationwide, similar to the previous year, indicating that while incentives are growing, sales volume remains stagnant. Developers are increasingly using these creative financing schemes, such as interest-free loans for up to ten years or significant payment deferrals, to attract buyers, especially those with limited liquid capital.
Experts warn that these aggressive financing schemes amplify risks for all parties involved. Matan Shtrit, Chief Economist at The Phoenix, noted that risks extend beyond buyers to developers and the banking system. Buyers face uncertainty about future financing and potential losses if property values decline. Developers risk cash flow issues and increased inventory if buyers default, while banks face growing credit risk from both developers and homebuyers. The Bank of Israel is monitoring these developments and evaluating whether to extend, update, or tighten the existing regulations.
