A storm has erupted in the industry following mortgage restrictions imposed this morning (Sunday) by the Banking Supervision Department at the Bank of Israel, with opinions divided on the matter. While the Association of Contractors condemned the step, some developers view it as “a welcome move.” Meanwhile, the Mortgage Advisors Association fully backs the action: “The Bank of Israel told the banks and developers: ‘This is the limit.’”
The Banking Supervision Department at the Bank of Israel dropped a bombshell this morning (Sunday) when it published mortgage restrictions aimed at limiting developers’ sales promotions, and unsurprisingly – the industry is in turmoil.
It should be noted that the document includes two main restrictions. The first is additional capital allocation for bank-supported projects in which more than 25% of the transactions were signed under the 20/80 model and similar ones, effectively making it more expensive to provide credit for such projects. The second is setting an “upper threshold” for banks so that balloon loans financed by developers will not exceed 10% of the total housing loans they allocate.
The Association of Contractors and Builders of Israel lashed out at the decision this morning, claiming it will harm the housing supply, which they argue is already suffering due to the war. “The housing market is in one of its toughest periods since the state’s founding,” said Haim Feiglin, Deputy President of the Association. “For various reasons, all resulting from government decisions, developers and contractors are struggling to continue building. On the other side are apartment buyers, who, due to the interest rate and the surge in construction costs over the past year and a half, are moving further away every day from the ability to purchase a home. In this situation, it is unacceptable for the Bank of Israel to act in a way that will result in fewer apartments and fewer people able to buy apartments.”
Feiglin also claimed, “The Bank of Israel claims that this year’s apartment sales jeopardize the banks’ stability, so let’s recall that for decades, apartments have been sold through various methods, one of which is partial early payment, which has never harmed any bank. Banks that recorded massive profits last year are not the ones the state needs to worry about. Its role is to strengthen Israeli industries, especially construction and infrastructure, and to protect those in need of housing solutions.”
“The banks are the last ones we need to worry about”
Ofra Hadaad, Deputy CEO and co-owner of Euro Israel, also harshly criticized the decision on mortgage restrictions: “Once again, the Bank of Israel takes care of the banks, which are breaking records in profits. True, the Banking Supervision’s role is to maintain bank stability, but these have long lost their ‘stability’ due to excess profits, and they are the last ones that need ‘worrying about.’ In all the state’s years, the stability of the banks has not once been at risk. Wars, crises, recessions – and the banks continue to rake in billions. It would be better if the government looked at the public a bit, not just at the banking system.”
According to Hadaad, “The Bank of Israel’s move only distances the dream of homeownership from young couples and those upgrading their housing. Is it okay for young couples to collapse under economic strain as long as the banks are secure? That’s absurd. The state must care for its citizens and help them get a roof over their heads. This move does exactly the opposite. The government must end restrictions on the public – enough is enough. And the developers? They are already in one of the hardest periods in the country’s history and now will have to allocate more equity to get bank financing. It will be much harder for them to compete in tenders, which are already becoming less accessible due to high interest rates. There will be fewer new projects, fewer construction starts and completions, and the housing supply in the market will suffer.”
It’s worth noting that not all developers are in agreement, and some welcome the move. For instance, Roy Fedalon, CEO and co-owner of the Sponder Fedalon Group, says, “The Bank of Israel’s move is a welcome step. The 20/80 or 10/90 payment terms effectively reflect a price drop of nearly ten percent but mask the real market situation. The new regulation will require the market to return to price transparency.”
However, he adds, “The timing of the move raises questions. It would have been better to implement this change alongside an interest rate cut, as without complementary steps, the market could freeze. For the change to be effective and not harm construction and sales pace, there needs to be a parallel positive incentive for buyers. In my view, there is an opportunity here to return to more rational and transparent pricing in the real estate market, but the process must be done carefully and wisely, balancing the needs of developers, buyers, and the banking system.”
Raz Schreiber, owner of Inhouse Project Marketing, said: “The mortgage restrictions imposed by the Bank of Israel on financing deals are a significant and harsh step that will first affect apartment buyers and not spare the developers. Previously, such deals were limited to about 15%-20% of a project’s transactions, but in the past two years, they have become routine. Apartment buyers will now be required to provide a higher percentage of financing upfront, which may significantly challenge them, especially during an economic slowdown.”
“From the developers’ side, many rely on contractor loans to offer buyers favorable financing terms, and now, with the new restrictions, they will struggle to continue doing so and will have to change their payment schedules. This means slower sales and even financial distress for developers, whose financing costs will rise significantly – a cost that will eventually be passed on to the homebuyer, especially for projects with a distant occupancy date.”
In conclusion, Schreiber warns that “significantly reducing financing options may cause a considerable slowdown in construction activity and severely harm the real estate market. In fact, these steps may lead to an increase in housing prices instead of lowering them, as the pool of buyers will shrink.”
“Bank of Israel Stopped the Trend Before It Created a Housing Bubble”
In contrast, the Mortgage Advisors Association welcomed the move by the Banking Supervision. “As early as a year ago, the association identified increasing risks in the field and the dangerous trends introduced into the market by various marketers,” read a statement published today by the Mortgage Advisors Association. “In our initial warnings about a year ago, the regulator of the Sale Law at the Housing Ministry responded by imposing restrictions on selling apartments before Form 4, and now the Bank of Israel has stepped in.”
Regarding the restrictions, it was noted: “These are ‘soft’ and responsible limitations that do not interfere with the real estate market or the client-developer relationship and keep the market open, free, and competitive. Developer promotions will continue in the market, but the most dangerous option – paying only 10% or 20% equity and entering a deal without contractor loans and any credit underwriting – will be stopped. The Bank of Israel’s directive does not create a significant limitation on the current market situation but tells banks and developers: ‘This is the limit.’”
“With this emergency directive, the Bank of Israel halts the further growth of the phenomenon and prevents it from becoming a standard practice. A practice that, had it become the norm in the market, could have been dangerous. Essentially, it prevented the phenomenon from developing into a bubble.”
According to Meir Wider, CEO of “Wider Mortgages,” “The Banking Supervision’s move is expected to cool the real estate market and limit buyers’ ability to finance homes through ‘balloon’ and ‘20-80’ plans, which have been especially popular recently. On the one hand, these restrictions may protect buyers from commitments they might struggle to meet in the future and thus prevent an increase in undelivered homes due to financing issues. On the other hand, developers may face difficulties selling apartments, which could slow construction and lead to a price drop. Additionally, investors and capital holders relying on deferred financing may find fewer financing options, which could change purchasing patterns in the market.”
CPA Magi Templeman Yitzhak, owner of Operativa Capital: “The draft emergency guidelines from the Bank of Israel are expected to impact financing mechanisms in residential projects, especially on deferred payment deals and balloon/bullet loans. The guidelines may initially seem challenging but hold advantages: improved project cash flow, reduced medium-term financing costs, and greater certainty regarding sales deals. It can be assumed that real estate developers and contractors will now examine existing financing structures and prepare accordingly to developments.”
