How Tel Aviv’s 'safest investment' collapsed: Falling apartment prices wipe out millions - analysis

In the last seven months, up to August–September, apartment prices in Tel Aviv fell by 6.13 percent. If an apartment was worth NIS 10 million in January–February this year, the buyer, investor or owner of that apartment has lost on average NIS 613,000 over this period. If we add inflation over these seven months, the real drop in price comes to 8.4 percent, which is NIS 840,000.

To lose that kind of money, a buyer of a single apartment, who does not own any other residential property, also paid purchase tax of NIS 513,886. Someone who bought an investment apartment in Tel Aviv for NIS 10m, meaning it is not defined as a “single apartment” under real estate tax law, had the “privilege” of paying the state NIS 878,899 in purchase tax to be “entitled” to that same real loss of NIS 840,000.

There are several reasons for the drop in prices. In Tel Aviv’s case, one is the flooding of land for development by the Israel Land Authority, especially in the area of the former Sde Dov Airport in the north of the city, where developers have also lost fortunes after buying land hastily and with heavy leverage.

A second reason is emigration abroad. We still do not have the net number of emigrants in 2025, but the Central Bureau of Statistics (CBS) has broken down the emigration figures for 2022–2024.

Over these three years, 24,718 people left Tel Aviv, and 7,748 returned. That means net emigration of 16,970 people from Tel Aviv alone. This exodus reduced the city’s population, which already had a low number of residents per housing unit.

In other words, more apartments were vacated than the national average, which was one of the factors behind falling prices, especially in Israel’s business capital.

Across Israel as a whole, apartment prices fell by 2.36 percent over the last seven months. If we again add inflation, the nationwide real decline was about 4.7 percent. If an apartment in Israel cost NIS 5m on average seven months ago, its owner has lost a real amount of NIS 235,000, on paper.

Here, too, purchase tax was paid. A buyer of a single apartment paid NIS 145,538 in purchase tax, and an investor paid about NIS 400,000.

The housing market, which was red hot for years and turned everyone into a “self-proclaimed expert” just because prices rose for 17 consecutive years, suddenly froze. That same “expert” has now discovered that housing prices can also go down, just as they fell in real terms by 25 percent between 1997 and 2007.

In February 2022, the Bank of Israel’s base interest rate was 0.1 percent. In March 2022, the hikes began, and within a single year, the rate had reached 4.25%.

In April 2023, as protests against the government intensified and the shekel weakened, the rate rose to 4.5%, and a month later, in May 2023, it jumped to 4.75%. Only in January last year did it drop slightly to 4.5%.

Since then, the interest rate has been kicking mortgage holders without mercy. The Bank of Israel is clinging to the high rate and not letting go. It may cut rates later this month for the first time in a long while, but that is still only a possibility.

Anyone who hoped interest rates would go back down to previous lows, which would allow households and investors to leverage their money by buying apartments with cheap prime-linked loans, has been disappointed. The prime rate, 1.5% above the Bank of Israel rate, now stands at 6%.

It has become a double-edged sword for households and young couples, who have watched their monthly repayments climb while their salaries erode in real terms.

This erosion has worsened since the beginning of the year, because income tax brackets and tax credits were not updated, and various allowances and tax discounts were not adjusted, due to the state’s need to raise revenue to fund the war.

Investors, too, are staying away from the apartment market. In September this year, the number of apartments bought by investors fell by 15% compared with September last year. Only 1,191 investment apartments were purchased in September, according to the Finance Ministry’s chief economist.

That is a negligible amount compared with the inventory of new apartments left on the shelf at the end of September, a total of 83,920 units, which is a 20.3% increase over September last year.

The CBS also reported this week that gross investment in residential construction was 12.1% higher than in the third quarter of 2024. Developers have no choice; they must continue building on the land they bought in order to minimize their losses.

According to CBS, in the Central District, apartment prices fell by 3.26% over the same seven-month period. If we again take inflation into account, the real drop was 5.6%. The Central District includes 11 cities with populations of over 100,000 residents each and accounts for about 41% of Israel’s population.

For example, in the three years 2022–2024, a total of 13,400 people emigrated abroad from just three cities, Petah Tikva, Rishon Lezion, and Ramat Gan, while only 5,303 returned. That is a net loss of 8,097 residents. These are only representative cities; they do not cover the whole district.

When people leave Israel, it is only natural that demand for apartments falls, and prices fall with it. Prices are set at the margins, so even a drop in demand of a few thousand apartments drags prices down.

In the third quarter of this year, 23,330 apartments were sold across Israel, a seasonally adjusted drop of 16% compared with the same quarter last year. New apartment sales totalled 8,780, a fall of 21.5% year on year. On average over the past year, 31% of new apartments were sold under various government subsidy schemes, according to the CBS.

Without these government subsidies, such as the “Price for the Buyer” (Mehir Lamishtaken) programs, the decline in apartment purchases would have turned into a full-blown collapse.

He adds that the fall in sales of new apartments in the free market segment is steeper than the decline in secondhand apartment sales, even though secondhand sales remain relatively low. In the third quarter, 14,550 secondhand apartments were sold, a 12% decrease compared with the same quarter last year.

Trend data from the CBS show that in the two months up to September, there was a modest increase in purchases, an average monthly rise of 0.6%, after an average monthly decline of 1.2% from July last year through July this year.

In Jerusalem, apartment prices rose by 1.7% over the last seven months, which actually amounts to a real fall of 0.7%. According to CBS figures, 14,002 residents emigrated from Jerusalem abroad between 2022 and 2024, and 6,924 returned. That is a net emigration of 7,078 people over three years, less than the net outflow from the Center.

There are also more people per housing unit in Jerusalem, so the drop in demand for apartments due to emigration is smaller than in the country’s center. It is reasonable to assume that this is one reason why the real decline in prices has been smaller than in the stormy Central District.

In Haifa, apartment prices rose by 1.17% over the past seven months, which translates into a real decline of 1.2%. According to the CBS, 11,571 residents emigrated from Haifa abroad between 2022 and 2024, and 3,565 returned, meaning net emigration of 8,006 people in three years.

Yet Haifa’s housing market has remained relatively strong. During the war, families who left the northern border region gravitated to the city. Homes and apartments were destroyed, jobs and businesses disappeared overnight, and Kiryat Shmona almost became a ghost town. Families preferred the regional capital, Haifa, which offers more employment opportunities and schools close to where they live, without the need for long, vulnerable commutes in dangerous areas.

Haifa has become more attractive in the North, especially after the mayor changed and the new leadership is seen more favorably by residents.

As if the high prime-linked mortgage rates were not enough, the Bank of Israel realized, belatedly, that the credit being extended to buyers by developers, directly or via the banks, could fuel a bubble that might later burst in its face and threaten the stability of the banking system.

In March this year, the central bank therefore imposed restrictions on loans to developers until the end of next year, in order to reduce banking-system risk in the real estate market. Most “balloon loans” subsidized by developers, in which buyers paid only near the end of construction and upon receiving the apartment, have been blocked. Developers have since tried to invent new ways to tempt buyers, but so far without any dramatic success.

The Bank of Israel fears that households will not really be able to meet the final payments on apartments they have bought, after relying on a hope that was widespread until the end of 2024, that the price of the apartment would surely rise and the profit was guaranteed. That has not happened.

Another factor that will make it difficult for apartment prices to go back to their long upward trajectory since 2008 is not only the emigration itself, but also the profile of those who are leaving and their education.

The number of Israelis with higher education who left for abroad, net of those who returned, is significantly larger than the number of emigrants with less than a first degree. The clear implication is that those who have been “taken out” of Israel’s population are people with higher incomes, in line with their years of study, and therefore with greater purchasing power in the housing market, compared with those with lower education levels and lower wages.

After investors and households have had enough of apartments as a “safe investment path,” as grandparents used to say, and after watching their wealth erode in real estate, they have channeled their money and capital over the past year into the Tel Aviv Stock Exchange and stock markets abroad. Share prices in Tel Aviv have risen to remarkable heights in the past year, over 50% in Israel, among the highest increases in the world.

So why bother investing in an apartment, and on top of that pay around 8% purchase tax for the “right” to lose capital as the apartment’s value falls? The housing market will be forced to refocus on households who simply want to build a family, because in the end everyone deserves a roof over their head, at least those who have stayed in Israel.

Just as residents of the North discovered Haifa instead of the threatening Lebanese border, investors have discovered the stock exchanges as a source of income, instead of apartments that were supposed to serve as pension-producing assets through rental income.