Big headache for the new government: Record demand for apartments in Israel and a renewed rise in prices

The Israeli housing market continues to break records. During May alone, an all-time high of more than 5,300 new apartments were purchased. As demand for apartments in Israel has continuously climbed, real estate prices skyrocketed by 7.2% over the past year, and the rate of increase shows absolutely no signs of slowing down. 

According to data published in mid-July by the Central Bureau of Statistics (CBS), the Israel real estate market is on fire: a record 5,314 new apartments were sold in the month of May – 60% higher than the monthly average throughout 2020. Furthermore, according to the also recently-published Housing Price Index, real estate prices spiked by 7.2% over the past year, with an increase of 0.7% between March-April 2021 and April-May 2021. 

These staggering figures reveal that alongside the fight against the Covid-19 pandemic and Israel’s geopolitical challenges, the new government formed just over a month ago will also have to deal with a severe economic crisis in the housing sector. Perhaps even more alarming than the jump in housing prices is the rate at which the prices are rising. Between August and November 2020, apartment prices rose by 1.3%, followed by a 1.7% rise from November 2020 to February 2021 and a 2.7% increase between February and May 2021.


Demand for apartments in Northern Israel has seen the most significant jump over the past year, with an 8.8% rate of increase in real estate prices. In the Tel Aviv district, including Tel Aviv and the cities of Gush Dan, the annual rate of increase was 6.9%, similar to 6.8% in the Jerusalem district.

If you look exclusively at brand new apartments, as opposed to second-hand, prices jumped by 2.9% in just one month, from April-May 2021. The average annual increase in the price of new there was a sharp jump of 2.9% during the months of April-May. The annual increase in the price of new apartments currently stands at 3.7%.

The immediate consequence of the rise in the number of new apartments purchased is a sharp drop in the supply of new apartments for sale. At the end of May 2021, there were just 37,565 new apartments listed for sale in Israel, compared to 51,045 at this time last year. In other words, in just one year, there was a 26.5% drop in the supply of new apartments for sale on the market. 

The data also reveals that approximately 12,690 new apartments were sold from March through May 202, reflecting a 14.8% increase compared to the previous three months. The CBS noted that since May 2020, the number of new apartments sold has increased at an average rate of 2.3% per month.

The city in Israel that has seen the highest demand for apartments during this period is the southern coastal city of Ashkelon, where 1,164 new apartments were sold, reflecting an increase of 35% compared to the previous three-month period (December 2020 to February 2021). It is speculated that without Operation Guardian of the Wall, which broke out in May, during which the city suffered heavy rocket barrages from the Gaza Strip, the number of apartments sold would have been even higher. 

The next city in the ranking is Tel Aviv, with about 850 new apartments sold (a rise of 26%), followed by Jerusalem with 516 new apartments (+27%), Ramat Gan with 481 (+15%), and Nahariya in northern Israel with 431 apartments (+29%).

According to Raz Schreiber, owner of Inhouse, which markets residential projects throughout Israel, the price increases that we are currently seeing are only the beginning and are expected to magnify in 2022. “The indicator for that price levels that we can expect to see in a year or two is the level of land transactions that take place today. Recent tenders by the Israel Land Authority indicate a 100% increase in land prices within a year. The effect of this on the price of the apartments to be built will be very strong.”

As an example, Schreiber presents a tender for the purchase of land in the Kiryat Shalom neighborhood of south Tel Aviv, at a price that reflects NIS 1.9 million for land for a housing unit. This is in a neighborhood where the price of a 4-room apartment, including construction, was exactly that price until a year ago. “If today in Kiryat Shalom the contractors pay NIS 1.9 million for the land alone, one can only imagine the price of the apartments. The market has a very serious supply problem, and unfortunately, a price run that will accompany us for at least another two years. That’s why my suggestion to anyone thinking about buying an apartment in Israel is to do it now, immediately. Not to wait until next year, or even until after the holidays, because there can be dramatic changes in the price.”

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The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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