The slowdown in the housing market and the difficulty developers face in selling their inventory of new apartments are prompting residential development and construction companies to explore different ways to manage their excess stock. Developers must decide not only on the selling price but also whether it is even advisable to sell the homes in the short term.
Some real estate companies are opting to cut prices or offer financing incentives while others are selling some of their units to real estate investment trusts (REITs) for rental purposes and others are experimenting with models that allow customers to rent an apartment first and decide later whether to purchase it.
Additionally, some developers are converting homes originally intended for sale into rental properties, aiming to generate steady income rather than waiting for a sale. What is the economic rationale behind this move? Is renting more advantageous for the developer than selling, and what does it mean for the tenant?
"Renting allows developers to 'buy time'"
Real estate data and marketplace company Madlan CEO Tal Kopel tells "Globes," "The conversion of apartments originally intended for sale into rental units by developers is a relatively new phenomenon, signaling the market's ongoing weakness."
He adds, "Developers realize that in today's climate, with a red-hot rental market alongside a growing inventory of unsold apartments, it may be better to change course rather than sit on empty units. These vacant apartments become an increasingly heavy financial burden as time passes since the building was ready for occupancy."
Two examples of this trend can be found in the Dona Engineering’s project in Modi'in and the Panorama North project in Bat Yam’s Park HaYam neighborhood. In the Dona project, about 20 apartments remained unsold; rather than lowering the price, the company decided to rent them out for two years before returning them to the sales market. At Panorama North - a 30-floor apartment building with 113 apartments, the developer opted to rent some 78 units on ten-year leases, taking advantage of incentives stipulated in the Law for the Encouragement of Capital Investments.
However, anyone looking to rent an apartment directly from a developer might not find it so easy.
One tenant in the project recounts finding the apartment only after actively searching across several channels. "I searched proactively, mainly on sites like Yad2 and in Facebook groups. The phone numbers of the company representatives marketing the apartments for rent were circulated in a Facebook group and on WhatsApp. I contacted them, and the service was excellent, fast, and professional. They showed us the apartments available for rent, and we could see what suited us."
An industry source explains that the slowdown in sales, which has led some residential construction companies to lower prices, is pressuring other firms to follow suit, even if reluctantly. Thus, an increasing number of companies that built projects for sale are converting some units into short- or long-term rentals, aiming to postpone the sale until the market stabilizes.
"Developers would obviously prefer to sell these apartments," the source explains. "However, converting units to long-term rentals offers tax benefits under the Law for the Encouragement of Capital Investments for rental housing, which can make the move worthwhile for the developer." He notes demand for these homes is high, and companies are successfully renting them out quickly.
"Developers worry that slashing prices to clear inventory would damage the project's reputation, anger early buyers who paid a premium, and most importantly negatively affect the lending bank's valuation of the remaining units," adds Kopel.
"Renting out the apartments allows the developer to 'buy time,' maintain the official list price on paper, and wait for an economic recovery without damaging the market."
"A solution suited for developers with financial staying power"
Dara Project Marketing CEO Dror Ohev Zion agrees, explaining that the decision to convert apartments for rental is driven primarily by the assessment that sales prices may improve in the future. He says, "Developers converting some units to short-term rentals believe that sales are currently sluggish, and they anticipate that the figures will look better after some time has passed."
He adds that this solution is particularly suitable for developers with the financial capacity to delay the sale. From the developer's perspective, he stresses, it essentially comes down to a choice between two alternatives: lowering the price to sell apartments now, or holding off on the sale and producing rental income in the interim.
"The developer tells himself: 'I could sell these apartments at the price I’m currently offered. The project is ready for occupancy, and if they haven't sold by now, I likely need to make a change. One option is to cut the price and sell them off. A second option is to wait and rent out these apartments," he says.
Ohev Zion points out that the need for such solutions stems not only from the difficulty of selling apartments but also from a shortage of long-term rental housing. He notes, "There is no real solution for long-term rental housing in Israel. We are seeing the first signs of developers starting to build for the long-term rental market, and REIT activity is picking up again, yet a rental housing shortage persists."
"Savings on municipal taxes and management fees"
Adv. Moshe Moyal, founding partner at Moyal Malachi & Co law firm, which specializes in real estate and urban renewal, tells "Globes" about the economic rationale for converting apartments for rental use. He says, "Renting out apartments produces additional cash flow for the developer through rental income, while also bringing savings on municipal taxes and a share of management fees.
"Furthermore, in many cases, the warranty period provided by subcontractors begins upon handover to the developer. So having tenants occupy the apartment allows for the early detection and timely repair of defects while the subcontractor's warranty is still in effect and the relevant parties are still on-site."
Adv. Moyal also stresses that in certain cases, specifically when dealing with a significant pool of apartments, it is possible to obtain "Approved Enterprise" status and benefit from tax incentives. Adv. Moyal explains that, alongside the advantages, the model also presents a disadvantage for the developer: as long as the apartments remain unsold, the developer cannot finalize the project's financial structure or close out the bank financing. This means financing costs continue to accrue, while the developer cannot yet realize profits from the apartments. "Interest charges keep mounting," he explains, delaying the project's projected revenue and profits to a later date.
He adds that renting out unsold apartments is essentially a way for the developer to buy time, produce ongoing income and avoid price cuts until demand in the sales market recovers. As he puts it, "In the short term, the developer stops 'bleeding' and even produces additional income, holding the property until they wish to sell under better market conditions. Naturally, this reduces overall supply and boosts demand."
Sale to a REIT: A major discount
Following a wave of deals in which REITs have bought large numbers of apartments from developers, Adv. Moyal highlights the economic differences between developers who choose to sell a portion of their apartment inventory to REITs and those who decide to convert their projects into rental properties.
He notes, "Selling a 'pool' of apartments to various residential companies is another way to manage excess inventory. In such cases, the developer benefits from a high degree of certainty and finality, as the inventory is sold irrevocably. But deals of this type typically entail a major discount.
"We often encounter such scenarios either at the outset, when a developer must meet the terms to activate project financing, or at the project's conclusion, when there is a large volume of unsold inventory. In these cases, despite the discount, the developer effectively completes the sale of the apartments, allowing them to close out the project financing and withdraw their profits. Thus, the advantages lie in certainty, finality, and the ability to close the financing arrangement, while the downsides are the cost of the discount and, at times, a lack of branding for the project."
Benefits for tenants: "Someone takes care of you at every stage"
Beyond the benefits of the model for the developer, tenants also enjoy a range of advantages when the developer itself rents out the homes, as opposed to dealing with a private landlord.
D., a father of three renting an apartment in a Dona project in Modi'in, explains that dealing directly with the developers offers major advantages. "First of all," he says, "it is a serious company that operates professionally. There is a clear division of roles and someone to handle tenant needs at every stage, so you feel like you have someone looking out for you - like having a parent figure backing you up.
"With a private landlord, it really depends on who you end up with and their whims. The process can drag on for weeks. Sometimes there are excessive or absurd demands on guarantors and security deposits, and the landlord isn't always available when needed. It’s no fun spending months chasing after landlords who might be 'shopping around' for offers from other prospective tenants. You don't have that issue when dealing with a company. If you're interested, you move forward, sign the contract, and that’s it."
Another benefit D. points out is certainty on rent. "In the private market, you might reach the end of the year only to discover that the landlord has decided to raise the rent 10% or even 20% - perhaps because their mortgage costs have gone up. When dealing with a company, the terms are clear from the start, and you know exactly what you’re getting into," he says.
"Beyond that, the contract - signed with the department that handles tenants - is fairly standard. You can rent for one or two years. You need to provide one guarantor, and the company also runs a credit check."
He adds that, from his perspective, a key advantage is their commitment to properly maintaining the apartment, which they have a vested interest in doing. "Ultimately, it’s their property; if they want to sell it down the line, it’s important to them that it stays in good condition," D. stresses.
Finally, he points out that the apartment itself is high-quality, with the company paying attention to the little details. As he puts it, "When renting from a private landlord, you sometimes have to chase them down just to fix a faucet or call a plumber for a leak and they certainly aren't always motivated to invest in the apartment beyond the standard finishes provided by the developer. Here, there’s a dedicated maintenance department, and the service is very organized and prompt."
Published by Globes, Israel business news - en.globes.co.il - on September 23, 2026.
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