2025: A decade-defining window in Israeli real estate

With the conclusion of Operation Am KeLavi and amid the broader context of the Swords of Iron war, domestic investors remain cautious. Foreign residents, however, are beginning to recognize the underlying potential. Market trends, alongside historical comparisons to the COVID period, suggest that those who enter now could see significant appreciation within the next two years.

The war’s impact has caused major disruption across the construction sector. A severe labor shortage has emerged, largely due to restrictions on employing Palestinian workers, who accounted for roughly one third of the workforce before the war. As a result, annual housing construction has dropped to approximately 20,000 units, nearly one third below the national target by late 2023. This shortfall points to a high likelihood of another wave of price increases.

This slowdown is expected to continue into 2026, significantly reducing the supply of new homes. Construction delays and rising execution costs, particularly in urban renewal projects, are forcing developers to absorb higher than anticipated expenses. This pressure is likely to affect project profitability and push apartment prices upward.

Despite a decline in transaction volume, demand for new homes remains strong, driven primarily by young families and by investors who recognize the long-term appreciation potential. “Demand has not disappeared. It has simply been postponed. Once the market recovers, prices will rise sharply,” explains Ester Ben David, a real estate entrepreneur and investor advisor.

In 2025, Israel’s real estate market continues to show annual price growth, albeit at a more moderate pace than the peaks of 2022. According to data from the Central Bureau of Statistics and the housing price index published in May and June 2025, prices rose by 5.1 percent over the past year, comparing March to April 2025 with the same period a year earlier.

The current average apartment price in Israel stands at approximately 2,330,000 shekels. Significant regional variation is evident across major cities and districts. The Northern District leads with a 9.5 percent increase in prices during March to April 2025 compared with the same period last year. Jerusalem recorded a more moderate rise of 6.9 percent. Tel Aviv saw a 5.3 percent increase during that period and a 9.7 percent annual rise, placing it once again among Israel’s most expensive cities, according to CBS data from January to March 2025.

Haifa posted a 5.3 percent increase for March to April 2025, while the Central and Southern districts lagged with increases of 2.9 percent and 3.8 percent respectively.

These trends reflect the impact of government investment in northern infrastructure projects, including the high-speed rail line to Kiryat Shmona and the Haifa to Nazareth light rail, alongside a severe shortage of new housing and a slowdown in the secondary market. In some areas, these forces continue to push prices upward, while others have even recorded a slight monthly decline of 0.1 percent in the most recent index.

The geographic gaps underscore the importance of location selection. Investors seeking faster returns are likely to find the strongest potential in the Northern District, Haifa, and cities experiencing accelerated development momentum.

Operation 'Rising Lion' had broad effects on the Israeli economy, particularly across tourism, commerce, and real estate. Closed skies policies and heightened security tensions led to a sharp decline in hotel occupancy, widespread booking cancellations, and stalled new transactions. These trends also weighed on the housing market in the short term, especially demand for investment properties in central cities.

Real estate companies report a slowdown in transactions, yet consistently note that after each military campaign, demand returns quickly. In many cases, a prolonged surge in real estate activity follows the end of hostilities.

While Tel Aviv and central Israel are experiencing relative cooling, satellite cities around the Tel Aviv metropolitan area, as well as the developing metropolitan regions of Be’er Sheva and Haifa, are showing price increases above the national average. New apartments in cities such as Modi’in, Tiberias, and Be’er Sheva offer higher yields, supported by government incentives and accelerated development. “Those aiming to create rapid value should focus on areas just before their growth leap. That is where the real potential lies,” Ben David emphasizes.

Periods of crisis in Israel have repeatedly proven fertile ground for bold investors. After a slowdown in housing prices during 2018 and 2019, the COVID crisis in 2020 marked the beginning of a renewed acceleration. CBS transaction data shows that in June and July 2020, apartment prices rose by 1 percent compared to May and June of that year, with a 2.9 percent increase over the twelve months through July 2020 compared to the previous year.

“According to forecasts, growth in the national housing price index is expected to continue rising in the coming months,” says Ben David. She explains that in the near term, given the security situation and reduced construction volumes due to labor restrictions, additional pressure on demand is likely.

These forecasts position Israeli real estate at a strategic entry point for foreign investors. The combination of a temporary slowdown, housing shortages, upward price momentum, favorable financing conditions, and economic resilience creates a compelling environment for medium and long-term value creation. Data previously published by the Bank of Israel consistently shows that the Israeli economy has a strong track record of recovering quickly from wars and security events. This time is expected to be no different, with growth anticipated as early as next year.

“Real estate is a timing game, and this is exactly the period when major successes are born,” Ben David concludes. “Those who enter now are positioning themselves to generate significant value for years to come.”