Investors shunning Israel’s homes market

The number of apartment investors, Israelis who own at least two homes, was about 386,000 as of June 2025. This is about 18% of homeowners in Israel, in addition to 1.73 million Israelis who own one home. About 25% of the investors, 92,000, own at least two homes for investment, in addition to the apartment in which they (probably) live. The figure does not include apartment heirs, whose exact number the Ministry of Finance and the Israel Tax Authority are unable to calculate.

Investing in homes has been a very popular trend in Israel in recent decades. Low interest rates and price rises in the real estate market encouraged tens of thousands of Israelis to buy apartments for investment every year. But now this trend has ground to a halt.

The Ministry of Finance chief economist reports that while the number of apartments purchased by Israelis as their only home fell 11% in the first half of 2025 compared with the first half of 2024, the number of homes bought by investors fell 17%, to an average of 1,000 apartments per month. The trend gained momentum in the second quarter of 2025, with sales falling to a historic low. The monthly average fell to 875 homes purchased by investors. In the last 15 years, only twice has the monthly average not exceeded more than a thousand apartments: during the first Covid lockdown and in the first months of the war.

The number of deals has fallen by 50% from last year

According to data from the last decade, about 13,000 new real estate investors were added to the number of home investors each year. But while in the peak year of 2021, almost 30,000 new investors were added to the market, according to the sales rate in the first six months of 2025, the increase in investors this year will be only 8,000.

Those leading the decline are those referred to by the Ministry of Finance as “veteran investors.” Those with a history of buying and selling investment homes. According to the chief economist, between January 2023 and April 2024, they dominated the investment housing market and were responsible for about 70% of deals, buying about 10,000 homes. In this group, multi-asset investors who own at least two investment homes stood out, accounting for about 40% of all purchases.

However, since May 2024, there has been a sharp decline in the relative prevalence of veteran and multiple asset investors within the investor circle. The proportion of veteran investors in the market stabilized at 40% in the first half of 2025, purchasing roughly 2,400 apartments, down over 50% compared with the purchases made in the first half of 2024.

Negative incentives and high taxes have left their mark

What has caused this heavy fall and why is the share of long-time investors in the fall so high? The chief economist attributes this, among other things, to the first missile launches from Iran in April 2024, but it is difficult to see this as a central or sufficient reason.

Other negative incentives keeping investors away are: high apartment prices, and especially the talk and predictions of a possible change in trend in the housing market (the Central Bureau of Statistics has already reported three consecutive months of price declines, albeit at a relatively slight rate of 0.6%); high interest rates in the market, as well as the restrictions imposed by the Bank of Israel and the Supervisor of Banks on financial transactions by contractors.

Furthermore, at the end of 2024, the Knesset Finance Committee approved continued high purchase tax on home investors, which is a minimum rate of 8% (compared with 5% in the past). In a situation where the average gross return reaches roughly 2.5% on renting out an apartment (gross return does not include associated expenses for tax, lawyers, brokers, maintenance, renovation, etc.), this is a tax bracket equivalent of more than three years’ returns that is written off at the time of purchase.

The alternatives: The capital market or property abroad

“There are alternatives to investing in real estate, especially for veteran investors,” says Nahi Finkelstein, an investor advisor – another popular profession that has seen better days. “An investor has no reason to put money in a market where prices are stable with a tendency to decline. The market today is less attractive and that same investor will often prefer to invest in the capital market or even in an apartment in Portugal, for example.

“Even given that there will be no significant price drop, investors purchase apartments and assume that they will benefit from increases and have capital gains from the purchase. If they anticipate that there will be no such increases, they will not buy. There is currently a relatively high degree of certainty that apartment prices will not rise, but only in certain places.”

Investment advisor Tzahi Kvatinsky agrees, “Prices, taxation and interest rates have led to a change in trend. A veteran investor tells himself that even if he can allocate 50% equity to an apartment, he will still have to spend thousands of shekels a month on the mortgage compared the the rent, and this weighs. For such investors, the capital market today gives excellent returns, or they can choose to invest abroad.”

The situation is likely to harm those renting apartments

The mirror image is, of course, rents. A decrease in the number of investors in the market means fewer apartments available for rent, which could put pressure on rents. All the more so after the Iran operation in June, which damaged tens of thousands of apartments and increased almost overnight the already high demand for renting an apartment.

Last month, the Central Bureau of Statistics reported a 5.9% increase in rents for new contracts, a figure we haven’t seen in a long time. The Bank of Israel Governor also referred to this in order to justify keeping high interest rates. About a quarter of the Consumer Price Index consists of changes in rental prices, which certainly doesn’t help to cool inflation.

Published by Globes, Israel business news – en.globes.co.il – on August 13, 2025.

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