2025 will be remembered as one of the most complex and dynamic years for Israel’s real estate sector. A year that began with high hopes that the war would end, interest rates would fall, and employees would return to workplaces proved to be yet another challenging year, in which the real estate sector operated under a combination of a high-interest-rate environment, ongoing security uncertainty, and severe manpower shortages. According to risk indicators, the construction sector continued to rank as the highest risk sector in the economy, with the gap between it and all other industrial sectors widening significantly.
Despite the financial risks, the market demonstrated resilience through an influx of real estate companies joining the stock exchange to raise funds and debt capital to finance enormous urban renewal programs. Legal activities relating to income-generating real estate were also particularly robust this year. The complex reality created by two years of war required sensitive management and close legal support for property owners in their dealings with tenants. These efforts bore fruit and resulted in most disputes being settled out of court. At the same time, the fact that Israeli airspace remained partially closed contributed to a significant increase in consumer activity in Israel’s commercial centers. This trend was reflected in a marked rise in the scope of legal services provided by our firm’s Real Estate Department to commercial and retail projects.
Following is a summary of the key issues that shaped the real estate sector during 2025.
Capital Markets, Financing, and Credit: Shift to the TASE and Regulation of Financing Models
Several significant changes in bank financing in the real estate sector occurred during 2025, including:
Financing for real estate companies:
- 2025 marked a turning point in the real estate sector’s sources of financing. The increase in the cost of bank credit led companies to flock to the Tel Aviv Stock Exchange, with more than 23 real estate companies issuing debt or capital at an inclusive volume exceeding ILS 4 billion. This trend will likely continue into 2026, with additional IPOs anticipated from residential construction and income-generating real estate companies.
- At the same time, the Bank of Israel accepted the recommendations of the Simhon Committee to prohibit banks from interfering in the pricing of individual apartments within project financing agreements. The goal is to remove obstacles that prevent price declines and to allow developers greater flexibility.
- The Bank of Israel also imposed restrictions on developer financing campaigns (such as 90/10 arrangements) and ruled that loans with a high ratio of deferred payments (over 40% of the price) will be classified as high risk (150%) on banks’ balance sheets.
Financing for : 2025 was characterized by record-high bridge loans. While some view this as a creative solution for the market slowdown, experts warn of overburdening apartment buyers and undermining long-term market stability, especially considering changing market conditions. This concern gave rise to disagreements about the need for regulatory intervention in this area.
Urban Renewal in 2025
Urban renewal solidified its position as the real estate sector’s central and most vital growth engine in 2025, providing a strategic solution to the shortage of available land reserves in high-demand regions and to the urgent national need for building renovations and retrofitting. The surge in urban renewal projects was reflected in record numbers of announcements of evacuation-construction complexes and in the creation of ambitious outline plans granting developers particularly extensive building rights, aimed to ensure economic profitability and attract developers to highly congested city centers.
The trend combines planning considerations and balancing the need for accelerated real estate development with infrastructure limitations and varying economic priorities among different local authorities. Despite its centrality, the real estate sector continues to contend with the challenges of a high-interest-rate environment and regulatory uncertainty, underscoring the importance of increased building rights as a necessary tool for driving the market during periods of uncertainty.
In addition, relatively large real estate companies with enough financial capacity to bear the associated risks continued to purchase agricultural land reserves valued at hundreds of millions of shekels as long-term investments with significant profit potential. This is despite the numerous risks involved, including lengthy settlement proceedings, a lack of feasibility in ultimately realizing the land, the risk of future expropriation, and heavy betterment levies. Nevertheless, the purchase of agriculturally zoned land enables developers to design their own project plans, instead of already-zoned land that is more readily available for development.
Regulation and Case Law in 2025: Innovations in Real Estate
The courts issued precedent-setting rulings in 2025 with direct economic implications:
- Betterment levies (the Hess ruling): Preference was given to the “comparative method” when calculating the betterment levy on a property sale, a measure that could save apartment owners hundreds of thousands of shekels. Conversely, the court ruled that upon issuance of a building permit, the deferral coefficient applies only to the addition of rights. This may significantly increase the levy paid by developers and erode project profitability.
- Accessible parking spaces: The court authorized local authorities to determine that “extra-standard” accessible parking spaces will remain part of the common property and will not be attached to specific apartments, provided that advance notice is given.
- Delays in apartment delivery: The High Court of Justice rejected the Builders Association’s petition for sweeping recognition of the war as a “frustrating event” that would exempt real estate companies from paying compensation for delays in apartment delivery. While the court did not rule out the possibility that the war may constitute grounds for delay, it held that each case must be examined on its own merits by the trial courts based on specific circumstances, such as a manpower shortage or a delay in raw materials, and not as a broad administrative decision.
- Real estate brokers regulations: The Real Estate Brokers Regulations (Ethics and Professional Duties) came into effect in early 2025, imposing obligations on all real estate brokers in Israel to ensure professional, fair, and transparent brokerage services, along with providing better protection to buyers and renters and raising the standing of real estate brokers.
2025 Summary, Conclusions, and Practical Recommendations for 2026
2025 ended with regulatory uncertainty and high financial risk, but also with a recovery trend relying on the capital market and urban renewal. Looking ahead to 2026, the trends point to accelerated recovery focused on rehabilitating war-related damage and a higher demand for protected construction, especially if interest rates decline.
We recommend that developers, contractors, and real estate companies update their business models according to the new method for calculating betterment levies, which may increase payment demands upon realizing building permits. In addition, we recommend accurately and substantively documenting any delays caused by the war (manpower shortages, site closures, etc.) to defend against future claims regarding delivery delays.
We also recommend adopting flexible contractual mechanisms regarding accessible parking spaces and project timetables to minimize legal exposure given existing regulatory ambiguity. It is also worth considering raising debt on the TASE as an alternative to increasingly expensive bank financing.
Looking ahead, the real estate sector’s success will depend on the State’s ability to remove bureaucratic obstacles in the fields of construction, energy, and planning, and on developers’ ability to adapt to a complex financing environment in which the TASE is becoming a major player.
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Adv. Terry Almozlino Arnon is a partner and head of the firm’s Real Estate Department.
Barnea Jaffa Lande’s Real Estate Department is one of Israel’s leading practices in the fields of residential real estate, commercial real estate, urban renewal, and planning and construction. The department provides comprehensive legal counsel on complex real estate transactions in Israel and abroad. Our team combines extensive experience, deep expertise, and practical familiarity with the market, advising developers, investors, real estate companies, institutional entities, and private clients on wide-scale transactions and some of the largest and most complex projects in Israel.