This morning, the Supervisor of Banks at the Bank of Israel, Daniel Hahiashvili, imposed new and dramatic restrictions on special offers by contractors that subsidize the purchase of new apartments. The Bank of Israel is very concerned at the rise in the risk on bank loans in the real estate sector, after, in the past year "we have been witness to a substantial rise in the sale of apartments through various promotional bargain offers by developers," the bank said.
The Supervisor of Banks has published a draft temporary order whereby restrictions will be imposed on the allocation of capital by the banks to residential construction projects in which at least 25% of the apartments are sold through discount offers, such as a down payment of only 20%, and 80% on occupancy, or even 10%/90%.
The Supervisor is also imposing a restriction intended to reduce the scope of balloon or bullet loans given by contractors to customers. The contractors obtain these loans from the banks for the purposes of subsidizing apartment purchasers. In these loans, the capital is repaid by the purchaser only at the end of the loan period, that is, the occupancy date, with the contractor paying the interest, in whole or in part, in the interim. The Supervisor has determined that such loans should be limited to 10% of home loans granted each month.
"Although this trend supported the continuation of activity in the housing market at the beginning of the war, when demand fell, it has grown in scope in recent months and involves a rise in risk," the Bank of Israel explains. "The rise in risk is for the purchasers, for the developers, and possibly also for the credit provided by the banking system, since these offers are liable to encourage the purchase of apartments by buyers about whom there is uncertainty about their ability to complete the deal," the Bank of Israel writes.
The new directive to the banks will be in force until the end of 2026, and includes additional instructions that, in the words of the Bank of Israel, "Have as their aim the reduction of risk for all those involved in the market though the strengthening of risk management, the strengthening of monitoring capabilities, and the strengthening of consumer protection. These measures strike a balance between reducing the growing risk from the use of these financing mechanisms, and the continued controlled use of this tool in the housing market."
Published by Globes, Israel business news - en.globes.co.il - on March 23, 2025.
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