Israel's Central Bank Weighs New Rules on Aggressive Developer Financing Deals

The Bank of Israel is considering new measures to curb aggressive financing deals offered by property developers as a temporary regulation limiting such practices is set to expire at the end of December. Data from the Ministry of Finance reveals a significant resurgence in these deals, with 45% of apartments sold by developers in September offered with financing incentives, the highest rate since March 2025 when the central bank's restrictions took effect.

These restrictions were initially implemented in March 2025 due to concerns that widespread financing offers, such as low down payments and deferred payments, posed risks to both buyers and the banking system. The regulations included a 150% capital allocation for projects with over 40% of deals involving significant payment deferrals and limited balloon loans and developer subsidies to 10% of residential mortgage performance.

Despite the increase in financing incentives, the property market has not seen a corresponding rise in sales. In September, developers sold approximately 1,800 apartments nationwide, a figure similar to the previous year, indicating that the incentives are not yet driving market recovery. Developers are employing creative financing methods, including large, interest-subsidized loans with deferred repayment and bridging loans secured against existing properties, to attract buyers with limited liquid capital.

Experts warn that these aggressive financing schemes carry substantial risks for all parties involved. Buyers face uncertainty regarding future financing and potential losses if property prices fall or they cannot complete their purchase. Developers risk cash flow issues, payment delays, contract cancellations, and an increase in historically high inventory. The banking system faces heightened credit risk as it finances both developers and homebuyers.

The Bank of Israel is actively monitoring the situation and conducting a thorough review to determine whether to extend the existing regulations, adjust them to current market conditions, or implement further measures to mitigate the identified risks.