Investment home buyers taking record mortgages

Do investors who are still buying homes know something that others don’t? The residential real estate sector is at a low ebb, but investment buyers are breaking records for mortgages.

Bank of Israel figures released this week on mortgage loans taken last month show that the average amount was NIS 1.05 million. But while people buying homes under the subsidized “Home at a Discount” program took loans averaging NIS 632,000, and buyers in the open market, not for investment, took loans averaging NIS 1.08 million, the average mortgage loan taken by investment buyers was NIS 1.4 million.

Not only is this a high number, but investment buyers are displaying a different pattern from that of other housing borrowers. For ten months, loans taken by the latter group have been stable at an average of NIS 1.1 million, whereas the average loan taken by investment buyers has increased by 40% since January last year, and has doubled since January 2020.

On the face of it, this is strange behavior in a market that has become less and less friendly for real estate investors. First of all, there are the low annual returns, at around 2-3%. Secondly, there are the high interest rates, which make investment in this sector less worthwhile. And thirdly, investment buyers pay a high rate of purchase tax, starting at 8%, which tends to wipe out the return for anyone who buys a home to hold for three to four years.

It’s not surprising that the Bank of Israel’s report states that investors accounted for only 12.2% of all home buyers last year, making it the weakest year for investment purchases since 2019.

Why, then, are the remaining investment buyers taking such high loans? We see several reasons. The first is increased exploitation of financial offers by developers. A year ago, the Bank of Israel published restrictions on financial offers such as “20%-80%”, whereby the buyer of a new home makes a down payment of only 20%, with the rest payable at handover. The central bank restricted deferred loans subsidized by the developer to a maximum of 10% of monthly housing loans, and tightened capital requirements on the banks for projects in which payments are not linear, that is, not in accordance with progress on the project. But, as reported in the past, these measures succeeded in reducing the proportion of deferred mortgages (“bullet” and “balloon” loans) only slightly.

Last month, mortgage loans were taken totaling 9 billion, of which 14.5% were defined as “bullet” and “balloon” loans. The percentage is similar to that of previous months, and double the level in the period before the developers started making special financial offers.

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It would appear that those investors still in the market are choosing to take advantage of these offers, buying apartments off the plan with low equity and with savings that can be in the hundreds of thousands of shekels on the apartment price, arising from the fact that developers are foregoing various kinds of index linkage.

Similarly, at least before the outbreak of the current round of fighting with Iran, investors probably assumed that interest rates would continue to fall, reducing the cost of purchasing an apartment.

Lastly, it would seem that these investors do not believe that home prices will fall. On the contrary, they assume that prices will rise, and what matters to them most is not the annual return from letting the apartments, but their rise in price, which will enable them to make an exit at some point in the future.

This is, of course, a gamble of sorts, especially given the price declines in the past year. The investment buyers apparently see that as a passing phase, and see price rises resuming soon. They also see a government that is almost inactive in housing, particularly rental housing, which may be encouraging a minority of them to continue buying homes and taking high mortgage loans, despite adverse macro conditions from their point of view.

Published by Globes, Israel business news – en.globes.co.il – on March 29, 2026.

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