ISRAEL Trends and Developments Contributed by: Hagit Bavly and Hadil Nassif, Arnon, Tadmor-Levy
increased compared to rents in the pre-COV - ID-19 period. This trend continued throughout 2021, and towards the end of 2021 reached new highs. In the second half of 2022, there was a slowdown in demand for office space, which led to slight declines in rents in some of these areas. Downgrading of Credit Rating In February 2024, Moody’s announced the downgrading of Israel’s credit rating from 1A to 2A. A well-known Israeli economist believes that the effects of this rare event will influence all players in the real estate industry in Israel. For entrepreneurs, the high price of money will affect the profitability of investments, and may put them in financing difficulties due to the high interest rate. Those who wish to purchase resi - dential units will see the impact on their very abil - ity to purchase them. In recent years, there has been a decline in the ability of the Israeli public to purchase residential units. In other words, it will be harder to both build residential units and to buy them. In April 2024, S&P also announced the down - grading of Israel from AA to A+. Loans and Credit in the Real Estate Market In 2023, the Bank of Israel continued to raise the interest rate in the Israeli market, from 3.25% at the end of 2022 to 4.75% in June 2023. In Janu - ary 2024, the Bank of Israel lowered the interest rate to 4.5%. Due to the increase in the cost of credit and the increase in the burden of credit repayment, the growth rate of the residential credit market has been particularly low compared to previous
years. In addition, the number of transactions for the purchasing of residential units declined. The increase in the interest rate since April 2022 was accompanied by a prolonged decline in the volume of new residential loans – from a peak of NIS12.3 billion in March 2022 to NIS5.6 billion in April 2023. The volume of residential loans stabi - lised from May 2023, and even increased slightly before declining again following the outbreak of the October war. According to data from the Central Bureau of Statistics, credit in the construction industry constitutes 38% of business bank credit and 44% of total tradable debt in the economy. An examination of the 25 largest public companies in the construction industry shows that these companies have bank credit totaling NIS36 mil - lion, out of NIS118 billion of bank credit to large businesses. The impact of the October war on the activity of the construction and real estate industries is significant. According to a survey by the Cen - tral Bureau of Statistics published at the end of November 2023, a quarter of companies in the construction industry reported very significant reduction in their activity, and nearly half the companies reported a negative impact of over 50% of their revenues. In projects where construction has already begun, the decline in the activity of construction companies increases the need for credit in order to cope with the decline in cash flow from sales (which are on a downward trend) and to finance construction expenses. The flow of payments from buyers who have already signed purchase contracts may also be adversely affected by the halt in construction progress at some sites.
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