The moment of truth has arrived. People who bought apartments from developers through the popular financing schemes that enabled them to defer most of the payment until handover, have now started to approach mortgage consultants and the banks, after realizing that they will not be able to meet the balance due when they receive the keys.
Galit Ben Naim, senior deputy chief economist in the Ministry of Finance, who is responsible for real estate, wrote this week that she had lately seen "an increase in the number of apartments sold at a loss by investors, including in cities in central Israel where in the past the proportion of sales in this category was negligible." Almost certainly, the completion of many projects sold under the various financing schemes has forced buyers to sell under pressure, and to compromise on price.
The aggressive financing schemes were common in the new apartments market in the last two years, following the rise in interest rates and the fears on the part of the developers aroused by signs of a steep decline in new home purchases. There are no official figures on the extent to which these schemes were utilized. They mainly consisted of a down payment of just 10-20% of the apartment price when the contract was signed, with the balance being payable on handover. According to conservative estimates made on the basis of Central Bureau of Statistics and Bank of Israel data, about 25,000 homes were sold this way, representing more than a quarter of all new apartments sold. Only in the past few months has the number of apartments sold under this method started to decline, in the wake of restrictions imposed by the Bank of Israel on the financing schemes.
No way to pay the balance
Bank of Jerusalem CEO Yair Kaplan and the Israel Mortgage Advisors Association say that, in recent months, as the occupation dates for these homes grow near, customers and developers have started to contact mortgage banks, in the realization that they will not manage to complete the purchases.
"We are already seeing the first signs of trouble," says Kaplan. "A few days ago, a developer came to the bank and asked us to help him with a buyer who had bought six apartments. He had had to return two of them to the developer and pay a penalty for breach of contract. With regard to the four remaining ones, he sought a rescheduling of the mortgage." Kaplan told of another customer who bought four apartments and had to sell them "for 20% less."
"We’re seeing problems, not just among investors who have bought several apartments, but also among move-up buyers," Kaplan adds. "These people bought apartments through special offers, because they believed that they would be able to benefit from the rise in prices and sell their existing homes close to the occupancy date for the apartments they had bought, and thus finance the 80% balance on the prices of the new apartment. They now realize that they aren’t able to obtain the prices they wanted for their homes, and that they have no way of paying the balance. They turn to us for bridging loans, in the hope that the situation will shortly improve from their point of view. Others are turning to the non-bank credit market." Other banks, and the Bank of Israel, say, however, that they are not aware of this phenomenon.
It should be stressed that customers who seek bridging loans until they receive the keys to their new apartments (encouraged by the developers who pay for the loan) undergo systematic checks to ensure that they will be able to take on a full mortgage when the time comes. But many Israelis paid developers 10% or 20% out of their own pockets without the involvement of a bank, and so there is no oversight of their ability to obtain a full mortgage.
In addition, since the project does not yet have an occupancy certificate, anyone who wants to sell an apartment they have bought also has to deal with the problem of transferring the guarantees to a the new buyer, which could mean a further drop in price.
This week, the chief economist will release the report on the housing market for the first quarter of 2025. According to Ben Naim, Beersheva continues to top the list of cities in which investors have sold properties at a loss. She says that many young people bought apartments off the plan in Beersheva with the aid of special financing offers, in the hope of reaping capital gains by the time the apartments were completed.
What is emerging is that not only have their hopes not been realized, but they may well end up selling the apartments at a loss, either because they are forced to do so because they are unable to make the final payment, or because they choose to cut their losses.
Will the phenomenon grow?
The Bank of Jerusalem itself has not in the past two years adopted the financing schemes, fearing the risks they involve. As mentioned, other banks we spoke to rejected Kaplan’s claims and said that they had not seen those "signs of trouble." The Bank of Israel said that it was aware of the risks of the financing schemes, but that there was no indication that there was any real phenomenon, and that, furthermore, the occupancy dates of the projects concerned were not close.
Kaplan insists, however, that even if the phenomenon Is not yet widespread, the reason for that is that so far only the first apartment buyers who took part in these schemes are in distress. "For now, the numbers are small, but our fear is that they will become worse as more and more projects enter their final stages of construction," he says. "One of the factors holding back the mushrooming of the problem is the lengthening of the construction period during the war to over three years."
The Israel Mortgage Advisors Association agrees with Kaplan. They too are seeing more and more signs of a problem arising in the market, and report lenders in distress contacting advisors to help them solve the problem.
"We are encountering the problems of these buyers, in some cases in selling apartments before obtaining an occupancy certificate, because of the issue of transferring guarantees, which leaves them with an apartment that they can’t pay for and can’t sell," says Avi Yosupov, deputy chairperson of the Mortgage Advisors Association.
According to the Association, changes in economic conditions because of the war and government measures to pay for it, are creating problems for some buyers. "A client told me that he signed such a deal before the war, when he worked at a technology company and earned over NIS 30,000 a month. Today, he no longer works at the same place, but in a part-time job in a startup. He earns a third of what he used to earn," Yosupov relates.
The question is whether these anecdotes will turn into the story of hundreds of even thousands of buyers, who will discover that, in the atmosphere of a shrinking market, falling prices, and interest rates that continue to be high, they will need to raise millions of shekels on difficult terms.
Published by Globes, Israel business news - en.globes.co.il - on September 1, 2025.
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