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The real estate market in Israel: 2024 forecast

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As we step into the year 2024, the real estate landscape in Israel continues to evolve, presenting both challenges and opportunities for investors, homeowners, and industry stakeholders.

In this article, we will give you a clear picture of what's happening in Israel's real estate scene for the year ahead.

If you need a full and more detailed report, with fresh data and actionable advice, please note that you can get our pack of documents related to the real estate market in Israel. This pack will also give you unlimited access to our team of experts, allowing you to ask them anything related to the housing market in Israel.

How's the Israeli economy doing?

Current state

Israel's economy and stability have experienced significant fluctuations historically, which have directly impacted its real estate market.

The country's economy has shown resilience and growth over the years, but it's often intertwined with its political and security situation, which can be volatile. This volatility sometimes affects investor confidence, both domestically and internationally.

Focusing on the real estate market, it has generally been robust, with prices rising steadily in the past couple of decades. Israel's housing market, in particular, has seen high demand, partly due to population growth and urbanization. The demand often outstrips supply, leading to rising housing prices. This situation has been challenging for many Israelis, making affordability a key issue.

Government policies have played a significant role in shaping Israel's housing market.

Historically, various government initiatives aimed at increasing housing supply and controlling prices have been implemented.

These policies include providing subsidies for homebuyers, encouraging new developments, and sometimes imposing restrictions on foreign investments to cool down the market.

More recently, the government has continued to grapple with these challenges.

Efforts have been made to increase the housing supply by streamlining the approval process for new developments and offering incentives for builders. There have also been initiatives to help first-time homebuyers.

Regarding regulatory changes affecting property buying or selling, there have been amendments over the years in tax laws, regulations around foreign ownership, and measures to control speculative investments.

These changes are often in response to the dynamic nature of the market and broader economic policies.

Israel is indeed a country where people like to invest in real estate, but the landscape is complex. The high demand for properties, especially in cities like Tel Aviv and Jerusalem, makes these areas particularly attractive for investment. However, these markets can also be quite expensive.

There's also interest in developing areas, as they offer the potential for higher growth in property values.

For foreign investors, there are specific incentives and drawbacks. On the one hand, Israel's real estate market can offer strong returns due to its overall stability and growth. However, foreign buyers might face higher purchase taxes and may find navigating the legal and regulatory landscape challenging without local expertise.

In comparison to neighboring or similar countries, real estate prices in Israel are generally higher. This is due to a combination of factors like limited land availability, high demand, and economic stability.

Regarding the legal framework surrounding real estate investment, it is relatively stable and transparent.

However, it's important for investors, particularly those from abroad, to be aware of the unique aspects of property ownership in Israel, such as different types of land ownership (private, state, and church land) and the regulatory environment.

Outlook and forecast

Israel's real estate market is indeed unique, shaped by a combination of geographic, historical, and socio-economic factors.

Limited land availability due to its geographical size and the high value placed on land ownership in Israeli culture are key characteristics. This limitation often leads to high property prices, especially in densely populated areas.

In terms of economic forecast and stability, Israel's economy has been traditionally robust, driven by strong sectors like technology, agriculture, and tourism.

The tech sector, in particular, has been a significant growth engine, contributing to a positive economic outlook. However, geopolitical tensions and regional conflicts can sometimes create economic uncertainties.

Cities like Tel Aviv and Jerusalem are experiencing the fastest growth in terms of real estate prices, driven by high demand and limited supply. Tel Aviv, being a commercial and cultural hub, attracts a lot of investments and expatriates. Jerusalem, with its historical and cultural significance, also sees high demand.

In contrast, peripheral areas like the Negev and Galilee, while growing, have more moderate real estate price growth.

Compared to regional neighbors, Israel's economic growth is relatively strong, particularly given its advanced technological and industrial sectors. This robust economic performance generally supports a stable real estate market.

Regarding government policies, there are always potential changes that could impact the real estate market.

These might include reforms in planning and construction laws to address housing shortages, changes in property taxes, or initiatives to promote affordable housing. Such policies can significantly influence the market, either by increasing supply (thereby potentially stabilizing prices) or by altering investment incentives.

Specific facts that suggest improvements in Israel include ongoing infrastructure projects, like new transportation links, which can increase property values in connected areas.

Additionally, initiatives to develop the tech sector and attract foreign investment can lead to economic growth, indirectly boosting the real estate market.

However, potential risks in investing in Israeli real estate include geopolitical tensions, which can lead to market volatility. Economic factors, such as inflation or changes in global trade dynamics, can also impact the market.

If these risks materialize, they could lead to a slowdown in real estate investment or a decrease in property values, especially in areas most affected by these issues.

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What about housing prices in Israel?

If you want to know the last prices, rents and yields in Israel, we have prepared everything you need in our property pack for Israel.

Current state

In Israel, the trend in real estate prices over the past few years has been predominantly upward.

This trend is influenced by several factors, including limited land availability, a growing population, and strong economic growth in certain sectors.

Historically, real estate prices in Israel have shown resilience during economic crises.

For instance, during the global financial crisis of 2008, Israel's real estate market did not suffer as dramatically as many other countries. This resilience is partly due to the conservative lending practices of Israeli banks and the constant demand for housing.

During economic booms, particularly when driven by sectors like technology, real estate prices have tended to increase sharply, reflecting the overall economic prosperity.

Comparing current real estate prices with those from a decade ago, there's been a significant increase. The demand for housing has continued to outpace supply, particularly in major urban areas, pushing prices upward. This is a trend seen across many parts of the country, not just in the major cities.

Currently, real estate prices are generally rising. The rate of increase might vary, but the overall trend is upward. This is especially true in urban areas where demand is highest.

The regions experiencing the highest growth in real estate prices are typically the central and coastal areas, including cities like Tel Aviv, Jerusalem, and Haifa. Tel Aviv, in particular, has seen some of the highest increases due to its status as a cultural and economic hub, attracting both domestic and international buyers. The high-tech boom has also contributed significantly to this trend, as well-heeled tech workers and investors seek properties in these prime locations.

There is a notable difference between urban and rural real estate prices in Israel.

Urban areas, especially those in the central region, command much higher prices compared to rural areas. This disparity is driven by factors such as employment opportunities, infrastructure, and lifestyle amenities that are more readily available in urban settings.

Several specific facts are causing these trends. Firstly, Israel's population is growing, and there is a significant influx of immigrants, which increases demand for housing. Secondly, the strong performance of the high-tech industry and the influx of foreign capital have boosted the purchasing power of certain buyer segments.

Additionally, Israel's focused investment in infrastructure and urban development has made certain areas more attractive, further driving up prices.

Outlook and forecast

The real estate market in Israel is influenced by a variety of economic and demographic factors that can lead to fluctuations in housing prices.

Understanding these factors provides insights into the current and future trends in the market.

One key factor is population growth. Israel has a high rate of population growth compared to other developed countries. This growth, fueled by both natural increase and immigration, particularly Jewish immigration under the Law of Return, creates a continuous demand for housing. In areas where housing supply cannot keep up with this growing demand, prices tend to rise.

This is particularly evident in major cities like Tel Aviv and Jerusalem, where demand is highest.

Another significant factor is the economic health of the country. Israel's economy is generally robust, with a strong tech sector and significant foreign investment. A healthy economy boosts purchasing power and can lead to increased demand for housing, pushing prices up. However, this effect might not be uniform across all regions.

While economically thriving areas, especially those near tech hubs, might see higher real estate prices, regions with less economic activity might not experience the same level of price increase.

Interest rates set by the Bank of Israel also play a crucial role.

Lower interest rates make borrowing cheaper, encouraging people to take out mortgages and buy property, which can drive up prices. Conversely, if interest rates rise, borrowing becomes more expensive, potentially cooling down the housing market.

Government policies and regulations can also impact real estate prices. For instance, government initiatives to increase housing supply, like promoting new housing projects or offering incentives for developers, can help stabilize or reduce prices.

On the other hand, restrictive zoning laws or high property taxes can limit supply or increase costs for homeowners, contributing to higher prices.

On the flip side, there are factors that could lead to a decrease in housing prices. Economic downturns, for instance, can reduce people's ability to afford homes, leading to a drop in demand and, subsequently, prices.

Political instability or security concerns can also negatively impact the real estate market, as they may deter both local buyers and foreign investors.

Additionally, demographic shifts, such as a declining birth rate or reduced immigration, could lower housing demand in the future.

Technological advancements, like the rise of remote work, might also influence housing trends, potentially reducing demand in city centers and shifting interest to more remote, affordable areas.

It's important to note that these factors don't impact all regions equally.

Areas with strong economic growth, desirable amenities, or limited housing supply are more likely to see price increases, while regions with economic challenges or excess housing supply might not experience the same trends.

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How's the demand for the real estate market in Israel?

Current state

In Israel, the demand for residential real estate has traditionally been high, primarily due to the country's increasing population and the influx of immigrants.

This demand often outpaces the supply, creating a market where there are more buyers than sellers. This imbalance can lead to higher property prices and a competitive market for buyers.

The supply of new housing is a critical factor in meeting this demand. Israel's government has initiated various programs to increase the supply of residential properties, especially in high-demand areas like Tel Aviv and Jerusalem. However, there's often a lag between the initiation of these projects and when they become available to buyers, which can temporarily exacerbate the supply-demand imbalance.

Additionally, the geographical constraints and regulatory issues can limit the expansion of new housing projects in certain areas.

Buyers in Israel are looking for a range of properties, but there's a noticeable trend towards smaller, more affordable units, especially among first-time homebuyers and young families. In cities, there's a high demand for apartments due to the urban lifestyle and the high cost of single-family homes. In suburban and rural areas, there's more interest in larger homes with more space.

Luxury properties, particularly in prime locations like Tel Aviv, also have a niche market, often driven by foreign investors and affluent locals.

Interest rates for mortgages are a significant factor in determining buying power. When interest rates are low, as they have been in recent years globally, mortgages become more affordable, increasing buying power and demand. However, if interest rates rise, it can lead to decreased demand as the cost of borrowing increases.

In Israel, mortgage rates are influenced by the Bank of Israel's policies and the global economic environment. Government policies and regulations have a substantial impact on the real estate market.

The Israeli government has implemented various measures to stabilize the housing market and make homes more affordable.

These include subsidies for first-time homebuyers, tax benefits, and increased investment in affordable housing projects. There have also been efforts to streamline the approval process for new construction to increase the housing supply.

Additionally, zoning laws play a crucial role in determining where and what type of housing can be built, which can directly impact the supply.

Outlook and forecast

Demographic shifts like aging populations and urbanization significantly influence the real estate market in Israel.

As the population ages, there's an increased demand for housing that caters to the needs of older adults. This can include smaller, more manageable properties, often in urban areas where healthcare and other essential services are more accessible.

Retirement communities or developments with amenities suited to seniors are becoming more popular.

Urbanization is another critical factor. As more people move to cities in search of employment and a higher standard of living, the demand for urban housing increases. This trend is particularly noticeable in major cities like Tel Aviv and Jerusalem.

The demand in urban areas often focuses on apartments, which are more plentiful and affordable for individuals or small families, in contrast to larger, single-family homes that are more common in suburban or rural areas.

Current trends in household formation also impact the real estate market. There's a growing number of single-person households or couples without children, which increases the demand for smaller apartments or studio flats. Young professionals, in particular, are looking for modern, convenient living spaces, often in urban areas.

This shift influences the types of properties being built and sought after, with a notable emphasis on smaller, more affordable units.

In terms of real estate as an investment, there's a strong trend in Israel towards buying property as a means to secure assets and generate income, often through renting. Investment buyers are typically looking for properties in high-demand areas, as these are more likely to appreciate in value and can be easily rented out.

Apartments in central urban locations are especially popular among investors due to their consistent demand and potential for rental income.

Cultural trends also play a role in shaping the housing market. For example, there's a growing awareness and preference for sustainable and eco-friendly living in Israel. This trend is leading to increased demand for properties with green features like energy-efficient systems, solar panels, and sustainable building materials.

Eco-friendly homes, though still a niche market, are gaining traction among a segment of the population that values environmental sustainability.

The role of foreign investment in Israel's real estate market is significant. Foreign investors often look for luxury properties or homes in prime locations, such as central Tel Aviv or Jerusalem. This demand can drive up prices in these areas and make it more challenging for locals to afford homes.

To manage this, the Israeli government has implemented various measures, including higher purchase taxes for foreign buyers, to regulate the impact of foreign investment on the housing market.

Finally, niche markets within the real estate sector, like luxury properties or eco-friendly homes, are experiencing unique trends. Luxury properties, often located in prestigious areas and featuring high-end amenities, attract a mix of wealthy locals and foreign investors.

The market for eco-friendly homes, while smaller, is driven by a growing environmental consciousness and a desire for sustainable living.

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How's the rental market in Israel?

Current state

The demand for rental properties in Israel is quite dynamic and varies depending on the region and the type of property.

In general, apartments, particularly in urban areas, are in high demand due to their affordability and convenience for a large segment of the population.

In major cities like Tel Aviv and Jerusalem, there's a strong demand for apartments, especially among young professionals, students, and small families. These urban areas, being centers of employment, education, and culture, attract a diverse range of tenants. The most sought-after features in these rentals are location, proximity to public transportation, and amenities like modern appliances, air conditioning, and sometimes a balcony or parking space.

The demand in urban areas is primarily driven by convenience and accessibility to work, educational institutions, and entertainment options.

In contrast, in suburban and rural areas, the rental market can be quite different. There's more interest in single-family homes or larger apartments, often driven by families looking for more space and a quieter environment. These areas attract tenants who prefer a more relaxed lifestyle, away from the hustle and bustle of city life. Features like garden space, parking, and community facilities can be more important here.

The proximity to schools and local community services also plays a significant role in these regions.

The demographic characteristics of tenants vary widely across different regions. In university towns or neighborhoods, you'll find a high concentration of students looking for affordable, shared accommodations, often close to their institutions.

These properties might be simpler and more functional, focusing on basic amenities and affordability.

Young professionals, on the other hand, often look for rentals in or near city centers where they can easily access their workplaces and urban amenities.

They tend to prefer modern, well-maintained apartments, sometimes willing to compromise on space for a better location or higher-quality amenities.

Families generally seek larger rental properties, which leads them to suburban or rural areas where such options are more available and affordable. They prioritize space, comfort, and proximity to schools and parks. Their preferences often lead to a demand for homes with multiple bedrooms and outdoor space.

Income levels and economic factors significantly influence the type of properties tenants can afford.

In more affluent areas, you're likely to see higher demand for larger, more luxurious rentals, while in regions with lower average incomes, the demand shifts towards more affordable housing options.

Certain regions in Israel are known for having high concentrations of specific tenant groups. For example, university cities have a high concentration of students, while areas with a high number of tech companies may have more young professionals.

Coastal cities might attract retirees who prefer scenic views and a quieter lifestyle.

Overall, the rental market in Israel is segmented by region, with each area catering to the specific needs and preferences of its dominant tenant groups.

These preferences are shaped by a range of factors, including employment status, family size, lifestyle choices, and economic capabilities, leading to a diverse and multifaceted rental landscape across the country.

Outlook and forecast

Several factors are significantly influencing the rental market in Israel, each shaping the landscape in distinct ways.

Firstly, evolving lifestyles and work patterns, particularly the rise of remote work, are having a notable impact.

With more people working from home, there's a growing preference for rentals that offer suitable spaces for home offices. This shift is also allowing people more flexibility in where they live, as they're not as bound to living close to their workplace. As a result, areas outside the major city centers, which offer more space at lower costs, are becoming increasingly attractive. This could lead to a rise in demand for rentals in suburban and semi-urban areas.

Specific cities and regions in Israel are experiencing demographic changes that reflect in their rental markets.

For example, Tel Aviv continues to attract a young, professional demographic, keeping the demand for small to medium-sized apartments high.

On the other hand, cities like Be'er Sheva, with its growing tech sector, are emerging as new hotspots, creating a demand for modern, well-connected rental properties that cater to young professionals and tech workers.

Technological advancements are also influencing the rental market. The integration of smart home technology, high-speed internet, and energy-efficient systems is becoming increasingly important for tenants. Properties equipped with these technologies are seen as more attractive and can command higher rental prices.

Furthermore, online rental platforms and mobile apps are making it easier for landlords and tenants to connect, streamlining the rental process.

Sustainability and green living are also becoming significant trends. There's a growing segment of the population, particularly among younger renters, who prioritize eco-friendly living. This includes a preference for properties with green features like solar panels, energy-efficient appliances, and sustainable building materials.

While still a niche market, the demand for such properties is on the rise, and landlords who invest in these features may find their properties more desirable.

The rental market forecast varies across different regions of Israel. In high-demand urban areas like Tel Aviv and Jerusalem, the market is expected to remain robust due to continuous demand.

However, in cities that are currently experiencing economic and demographic growth, like Be'er Sheva, the rental market is expected to expand, potentially offering more affordable options compared to the pricier city centers.

Considering all these factors, the long-term outlook for the rental market in Israel is one of diversification and adaptation.

As lifestyles, work patterns, and preferences evolve, so too will the rental market, with different regions developing unique characteristics based on their demographic and economic profiles.

Finally, within the rental market, niche sectors like luxury properties and eco-friendly homes are experiencing unique trends. Luxury rentals, particularly in prime locations, continue to attract high-income tenants and foreign residents.

The eco-friendly rental market, while smaller, is poised for growth as environmental awareness increases and more renters seek sustainable living options.

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This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.