Bank of Israel Weighs New Measures as Contractor Financing Deals Surge

With a key regulatory deadline approaching at the end of December, the Bank of Israel is examining new measures to curb aggressive financing deals offered by contractors for apartment purchases. A temporary order restricting such deals is set to expire, but recent data from the Ministry of Finance indicates a significant resurgence in these incentives. In September, 45% of apartments sold by contractors were offered with financing benefits, the highest rate since March 2025 when the bank's restrictions first took effect.

The Bank of Israel initially intervened in March 2025 due to concerns about the growing risk of aggressive financing, where buyers made low down payments and deferred substantial portions of the cost, potentially lacking the ability to complete the purchase later. This posed risks to both buyers and the banking system. The existing regulations include a 150% capital allocation for projects with over 40% of deals involving deferred payments and a limit on balloon loans and contractor subsidies to 10% of residential mortgage performance.

Despite the return of financing incentives, apartment sales have not significantly increased. In September, contractors sold approximately 1,800 apartments nationwide, similar to the previous year, suggesting these deals are a primary tool for developers to stimulate demand but not guarantee sales recovery. Developers have introduced creative financing options, such as interest-free loans for up to ten years, deferred payments for extended periods, and subsidized balloon loans, to attract buyers with limited liquid capital.

Experts warn that these expanding and increasingly aggressive financing schemes amplify risks for all parties involved. Matan Sharit, Chief Economist of Phoenix, highlighted that buyers face uncertainty regarding future financing and potential losses if property prices fall. Developers risk cash flow issues, payment delays, contract cancellations, and increased inventory. Banks face growing credit risk exposure from both developers and homebuyers.

The Bank of Israel's banking supervision department is actively monitoring these developments and evaluating the need to update guidelines or implement further measures. The temporary order has already reduced contractor deals since late 2023, and the bank is conducting thorough data-based analysis to determine its next steps, which may include extending the current order or tightening existing restrictions.