The End of Israeli Banks’ Interference in Housing Prices?
Summary
- In August 2025, the Bank of Israel issued guidelines prohibiting banks from including provisions in residential construction financing agreements that affect the price of individual apartments.
- The Simhon Committee found such restrictions unnecessary for managing credit risk and potentially harmful to competition, since banks can still include clauses related to overall project revenues, financial stability, and business plans.
- Banks have begun revising financing agreements accordingly and were required to report implementation measures by October 31, 2025. The effect of removing these restrictions on the Israeli housing market has yet to be seen.
In August 2025, after receiving the recommendations of the Simhon Committee, the Bank of Israel published new guidelines for banking corporations. Banks providing financing for residential construction projects will now be prohibited from including stipulations in their financing agreements that relate to the price of an individual apartment.
Background: Bank Financing Agreements and the Simhon Committee’s Formation
Bank financing is an essential component of any real estate development project, including residential construction projects. To obtain bank financing, a developer signs a financing agreement with a lending bank, which regulates the relations between the parties and protects the rights of the bank providing credit facilities to the developer, inter alia, by way of close supervision of the construction project and the developer’s adherence to its business plan.
A developer applying to receive bank financing for a project must present an appraiser’s financial feasibility study of the project to the bank, comparing all expected costs against the expected sale prices of the developer’s apartments (breakeven report or “zero report”).
Until now, as part of their credit risk management policies, banks have customarily included provisions in their financing agreements preventing developers from lowering apartments’ sale prices below that specified in the zero report.
Due to the concern that these provisions could harm competition and have a chilling effect on any lowering of housing prices, a government committee was formed in July 2025, headed by the chairman of the National Economic Council, Prof. Avi Simhon, to scrutinize the banking system’s involvement in setting housing prices.
Simhon Committee’s Conclusions
The committee concluded that, since banks have other tools for contending with the credit risk involved in project financing, without interfering with housing prices, and since even a significant drop in housing prices is not expected to have a material impact on a developer’s credit risk, there is not only no justification for banks’ influence over housing prices, but also such influence has a chilling effect on lowering housing prices.
Accordingly, the committee recommended that banks be prohibited from both interfering in developers’ considerations when setting apartment prices and from including stipulations in bank financing agreements that relate to changes in apartment prices.
The committee emphasized that banks are free to include stipulations in financing agreements that relate to developers’ overall business plans, including stipulations regarding project revenues, financial robustness, etc. However, the committee determined that interference at the level of the price of a single apartment is not necessary to protect the bank’s interests and could harm competition.
Supervisor of Banks’ Guidelines: Implementation of the Committee’s Recommendations
Following publication of the Simhon Committee’s recommendations, the Supervisor of Banks instructed banking corporations to implement its recommendations when providing financing to developers for residential construction projects. Banks were obligated to report on the measures they took in this regard by October 31, 2025.
Banks have already begun implementing the guidelines and revising the wording of their financing agreements accordingly. The outcome of removing this restriction on the Israeli housing market remains to be seen.
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Adv. Alon Wolner is a partner in the firm’s Real Estate Department.
Barnea Jaffa Lande’s Real Estate Department is among the leading practices in Israel in the areas of real estate, urban renewal, and planning and construction.