Every market has its cycles of rises and falls, but if there is one thing that characterizes the Israeli real estate market, it is its endless dynamism. After a period of turmoil—starting with the interest rate hike in April 2022, through the legal revolution and public protests in 2023, and the major disaster on October 7 that led to an extended war—the industry is changing its habits to continue functioning, and at times even thriving.
The result: the real estate market in Israel has entered a new era, where non-bank financing is becoming a significant factor, urban renewal is changing the face of cities, and institutional capital is flowing in—sometimes in a less measured manner.
To understand the trends, challenges, and opportunities that lie ahead in the coming years, we spoke with two prominent figures in the field: Ayelet Rusk, CEO of Michlol Real Estate Financing, and Uri Paz, CEO of Michlol Financing.
"The Money Isn't Cheap, It Needs to Be Used Wisely"
If you ask Ayelet Rusk, the answer to the question of what the current state of the real estate market is will be particularly surprising: "The ongoing war has created significant challenges that threatened to bring the industry to a prolonged standstill.
“However, contrary to expectations, the market has managed to maintain optimism and is functioning very well,” Rusk said. “Construction sites have returned to full operation, and the worker shortage, which was a major issue a few months ago, has largely been resolved. Workers have arrived, although not in the numbers we expected, but it's been enough to return the industry to regular activity—for now."
According to her, the pace of work on construction sites today is similar to that of 2022, a year considered very good for the real estate sector. "2023 was a less favorable year, mainly due to the legal protests and the war that broke out at the end. 2024 already looks better, and there are very optimistic forecasts for 2025," she adds.
Another prominent topic that Rusk wanted to address is the large amount of money currently in the system. "There are many financing bodies, and the capital market is hot," she says. "This money is meant for the development of companies, but it's not cheap, and it needs to be used wisely."
Rusk continues by noting that companies' leveraging is becoming increasingly aggressive, which can be a trap for some developers who lack the appropriate capital and operational infrastructure.
"Competition is high, and there's a lot of money in the system,” the CEO says. “One needs to know how to leverage it properly. Some developers are taking mezzanine loans, which we know are more expensive, and it’s important to remember that in the end, someone has to pay those interest rates. In a high-interest environment like today, this can be a dangerous move."
"From the Depths to the Heights"
Uri Paz agrees with Rusk’s assessment and adds that the market speaks for itself: "The market today is hot. Many investors want to enter, maybe even a bit too much considering the risks." He describes a picture where investors have moved from sitting on the sidelines for several months after the war to a market where capital is flowing quickly, including in bond issuances by medium-sized companies, not just the leading companies in the sector, as it was in the past.
Paz explains: "We’ve gone through three challenging years, from the interest rate crisis, the internal division, to the tough war, and here we are, still here—and the market is still alive and kicking,” he says. “This means that investors understand that real estate in Israel is strong, and evidence of that is the ongoing bond issuances and the increase in investments."
He also warns of "supply holes" that could lead to future disruptions: "The Rami tenders were almost halted for about a year and a half. When there aren’t enough lands for marketing, a natural shortage occurs. This means that in the coming years, there could be a significant shortage of new apartments—something that won't help in curbing the rise in prices."
Urban Renewal: The Main Engine of the Real Estate Market
One of the central topics in the current post-war recovery is urban renewal. "Luckily, it’s reaching the Krayot, Karmiel, Be'er Sheva—it’s happening," Rusk announces.
However, she qualifies: "I still don’t see an all-encompassing economic solution. Right now, there are a lot of localized solutions, but a model that will allow developers to operate on a large scale in the periphery is still not in place. The main issue is that developers need either higher building percentages or complementary lands—and this is still not widely regulated."
Rusk also refers to the light rail: "We’re already seeing its impact. In Petah Tikva, for example, projects that used to be sold for NIS 25,000 per square meter are now selling for NIS 30,000 per square meter—because of the proximity to the light rail. It's dramatic." According to her, investments in public transportation will continue to affect real estate prices and attract demand to new areas.
Paz adds, "We are on the verge of a very large surge in urban renewal. We’ve moved from building single buildings to TAMA 38, and now we’re entering an era of large-scale evacuation and construction. This means hundreds of apartments in each project, not tens. Currently, 30% of new apartments in Israel come from urban renewal, and this will continue to grow. There’s no other choice—the lands in the center are running out."
He says that urban renewal is the only solution to the natural population density in Israel. "Tel Aviv, for example, is less dense than Paris by 3.5 times. We need to keep building in the city centers because sprawling only in villas in the Galilee and Negev is not a sufficient solution."
Non-Bank Financing: The Alternative That Changes the Rules
Within this entire dynamic, non-bank financing companies are taking on a more significant role. Paz explains that Michlol is already competing with the big banks in the urban renewal sector: "If you ranked Michlol among the six largest banks by the scope of its activity in this sector, we would find ourselves in a good middle position. This shows how much this field is growing."
Rusk adds, "Large companies, which until about a year ago would say 'We only work with the banks,' today already understand that non-bank financing is a competitive and viable alternative." According to her, Michlol’s advantage over traditional banks is its ability to think outside the box and the competitiveness of the financing it provides.
Looking Ahead: 2025 as a Turning Point
Finally, we asked Rusk and Paz about their forecast for 2025. "I think urban renewal will continue to be the main engine of the real estate market," says Rusk. "We’ll see more large projects, more evacuation and construction, and fewer small and medium-sized deals."
She also mentions the importance of creative financing solutions: "As the non-bank financing market strengthens, it will become easier for developers to execute projects that until now were just a dream. This will drive real change in the market."
Paz concludes with cautious optimism: "We’ve gone through two tough years, but the market is showing signs of recovery. There’s a lot of money in the system, and the demand for apartments in Israel, at least in the foreseeable future, will be higher than the supply, due to the high birth rate, which is among the highest in the West.
“However, the way it is financed and developed will determine who succeeds and who will struggle to survive,” he says. “Ultimately, as long as we know how to leverage the opportunities properly, 2025 could be a very good year for the sector."
