In 2024, only 931 rental apartments were successfully marketed through ‘Dira LeHaskir’ tenders – just one-fifth of the volume in 2022, marking one of the lowest figures since the program’s inception. A review by the Real Estate Center reveals that companies previously active in Israel’s long-term rental sector have stopped bidding. Donna Group’s VP: “The government is not providing solutions, and the sector is stagnating.”
By Doron Breutman, Nadlan Center
In recent weeks, Israel’s long-term rental housing initiative has returned to the headlines, primarily due to disputes between various government agencies over how the program should proceed. While the Planning Administration and district committees are pushing for a new generation of rental projects—permanent rental developments under unified ownership—the Ministry of Finance and the Israel Land Authority (ILA) are resisting, citing economic viability concerns and the state’s need to maximize land revenues.
But what has happened to the more common long-term rental model implemented over the past decade by the state-owned company Dira LeHaskir? A study by the Real Estate Center shows that the model, which had seen relative success until two years ago—attracting major real estate firms like Ashtrom, Rami Shabiro, Africa Israel, and Donna—has faced significant setbacks. Rising interest rates have weakened the sector, leading to widespread failures in new rental housing tenders despite an increase in the number of tenders issued.
A Surge in Tenders But a Sharp Decline in Success Rates
According to the Israel Land Authority’s (ILA) tender system, 24 long-term rental tenders covering 6,998 housing units were issued in 2024—a record high. In comparison, 19 tenders for 5,520 units were issued in 2021, 23 for 6,328 units in 2022, and 16 for 3,384 units in 2023.
However, the picture is far less optimistic when examining the actual success rates—meaning tenders that resulted in completed projects. In 2024, only 10 tenders were awarded, with just five entirely successful and one partially successful, yielding 931 rental units. This marks a 78% drop compared to 2022, when 15 entirely successful tenders resulted in 4,248 rental units. The trend was evident in 2023, with only 9 out of 17 tenders leading to successful projects, producing just 2,052 units.
Discrepancies in Data Between ILA and Dira LeHaskir
Data provided by Dira LeHaskir to the Real Estate Center reflect a similar trend but show discrepancies in the number of units marketed to the public. According to their figures:
- In 2021, 23 tenders were issued for 6,574 units.
- In 2022, 23 tenders were issued for 6,385 units.
- In 2023, 23 tenders were issued for 5,417 units.
- In 2024, 26 tenders were issued for 7,374 units.
This means that in 2023 alone, there was a gap of around 2,000 units between the two sources regarding the number of units issued for tender.
When it comes to successful tenders:
- In 2021, all 17 tenders awarded resulted in 5,183 rental units.
- In 2022, all 17 successful tenders produced 4,494 rental units.
- In 2023, 14 tenders were awarded, but only 12 resulted in 2,187 units.
- In 2024, 14 tenders were awarded, but only six were successful, yielding 992 units.
“For the Foreseeable Future, We Are Not Bidding on Tenders”
“The turning point for Dira LeHaskir tenders was the interest rate hike,” explains Ohad Saban, VP of Marketing and Business Development at Duna Group. “As long as interest rates were low, many large, high-quality companies participated. The moment rates rose, the viability of these deals plummeted, making them completely unprofitable. The truth is, many companies lost money on long-term rental tenders due to the rate hikes.”
“Interest rates have tripled,” Saban continues. “If financing costs for a unit were previously around ₪60,000-70,000, they now exceed ₪300,000. Unlike projects for sale, rental projects cannot rely on pre-sales to fund construction, meaning developers must finance them through bank loans or equity, significantly increasing costs. Recent tenders reflect this reality—developers have factored in the higher interest rates, leading to lower bids on land prices than in the past. Additionally, the increased cost of financing reduces future rental income projections, further eroding profitability.”
“As a result,” Saban states, “Donna has decided not to participate in new long-term rental tenders in the foreseeable future. We are still constructing over 2,000 units from tenders we won in previous years but are not submitting bids for new projects. If the government provided at least some financial solutions—such as a state-backed interest guarantee—we could see significant progress in the Dira LeHaskir program. But currently, the government is not offering solutions, so the sector is stagnating.”
“The Government Isn’t Doing Enough to Incentivize Developers”
Real estate appraiser Yaron Yunitzman, CEO of Yunitzman Real Estate Appraisal, says, “A project like this is always leveraged. When borrowing costs rise, but rental yields remain flat, the risk to developers increases. Most developers don’t want to invest significant personal capital in these projects. Typically, they bring about 30% equity, with the remaining 70% financed through banks or institutional lenders. Higher financing costs erode profitability and can even result in losses—something no developer wants to face.”
Yunitzman also argues that the government isn’t doing enough to attract developers to long-term rental projects: “For example, they could offer tax incentives on betterment levies and other fees. Instead, they impose strict tenant protections, require developers to maintain an upkeep fund, and cap rental prices—preventing developers from operating under truly free-market conditions. Given these constraints and the current high-interest environment, many developers are rethinking their participation in this sector.”
Yunitzman says, “Israel has decided to promote long-term rentals, but it’s only taken a half-step. Without stronger incentives, it’s simply not enough.”
Dira LeHaskir: “The Scale of Tenders and Success Rates Is Higher Than Reported”
In response, Dira LeHaskir stated: “The actual number of tenders and successful projects is higher than reported in the article. Our data, along with those of the Ministry of Housing and ILA, show that in 2024:
- Developers, including significant market players, continue to bid on tenders.
- Despite the war in the north, tenders in cities like Nof HaGalil and Migdal HaEmek succeeded.
- Institutional investors are entering the sector for the first time.
“Interest rate hikes have changed the landscape, and together with the Ministry of Finance, the Ministry of Housing, and ILA, we are adapting with new solutions. A recent policy adjustment has introduced flexible mechanisms to address market conditions. A comprehensive strategic plan for Israel’s rental market is also being developed. Current tenders have seen strong interest from developers, demonstrating that long-term rental housing remains a vital part of Israel’s housing solutions.”
The Israel Land Authority confirmed the 2024 figures but did not comment on the broader trends outlined in this report.
