Real Estate Credit Drives Israeli Business Loans to 16-Year High Amid Market Struggles
Israeli business credit has surged to its highest level in over 16 years, primarily fueled by loans to real estate and construction companies, according to a detailed analysis by Meitav Brokerage's chief economist, Alex Zebzinsky. Over the past year, the five largest banks in Israel have expanded their business lending by double digits, with bank-originated credit growing at a record annual rate of about 25%, far outpacing non-bank sources which have declined. However, this growth is not indicative of a booming economy but rather reflects financial support to real estate firms struggling amid a housing market slowdown.
Zebzinsky explains that the credit increase is largely artificial, as construction companies are borrowing to sustain operations during a period of low demand for housing and office space, rather than to expand. This trend contrasts with previous periods when credit growth coincided with increased active construction areas. The Bank of Israel's recent research corroborates these findings, showing a 40% rise in loans for residential project financing last year, driven by falling sales, rising construction costs, and financial incentives offered by developers to attract buyers.
Credit growth in the real estate sector is accompanied by a record inventory of unsold apartments and extended sales periods, which pressure developers' profitability due to higher financing costs and discounting strategies. Meitav's report warns that if these conditions persist beyond a year, the sector may face significant financial risks. Bank representatives acknowledge the challenges but note ongoing adaptations by developers, including new project types and financing methods.
In contrast, consumer credit (excluding mortgages) has grown moderately by about 7%, led mainly by non-bank financial institutions such as insurance companies and credit card firms, while banks have taken a more cautious approach. The Central Bureau of Statistics reported a 14% annual decline in real estate sector revenues, despite overall economic growth and a 20.7% increase in industrial high-tech revenues.
Zebzinsky concludes that while the credit expansion supports short-term economic activity, its concentration in a struggling real estate sector raises financial risks and limits its contribution to long-term growth. The situation remains fragile, with hopes that lower interest rates and increased housing demand could stabilize the market within the next year.
