As war fears subside, real estate experts debate how high prices will soar in 2025

The strength of the Israeli real estate market during 2024 surprised many, as home prices rose about 8 percent during a year defined by a multifront war and general uncertainty about the future.

Now, with a temporary ceasefire in Gaza in effect and the belief that the war may be winding down, real estate insiders expect housing prices to continue to rise in 2025. As foreign and local buyers assess their options and confront new tax realities, the question is how sharp the rise will be.

Chaim Friedman, co-founder and managing director of First Israel Group, a boutique mortgage brokerage based in Jerusalem, expects home prices to spike as much as 10-15% this year around the country.

“There’s a lot of demand that hasn’t been realized in previous years due to the fact that a lot of people put their lives on hold during the war,” he said. “Demand is going to return in the north and the south, where the markets have been pretty much frozen, and people are going to return to the market to buy homes to live in or as an investment. I think it’s going to be a very strong year.”

Not everyone agrees. Nachi Paris, owner of Nachi Realty in Jerusalem, expects high demand to continue, but thinks prices will rise more moderately.

“I expect prices in Jerusalem to go up twice as much as inflation,” Paris said. “That is to say, if inflation rises 3% for the year, prices will rise 6%. That means it is still a good investment, but prices aren’t rising so fast that if you don’t buy now, you’ll miss the boat. You missed the boat because you didn’t buy in 2016, but that’s behind us now.”

With economic data for December 2024 not yet available, the Central Bureau of Statistics says housing prices in Israel have risen by 7.8% over the previous 12 months, continuing a growth trend that has continued for most of the past two decades.

A combination of factors — including a longstanding housing shortage, strong population growth, and growing foreign investment — has kept demand high, even as the conflict disrupts construction and economic stability.

Inflation for the 12 months through November was 3.4%, and is expected to average 2.6% for 2025 after rising faster during the first quarter of the year, the Bank of Israel said earlier this month.

Geopolitical factors including the Gaza ceasefire, the government’s approval of the national budget, the routing of Hezbollah and the ceasefire in the north have reduced the country’s risk premium looking forward, Bank of Israel governor Amir Yaron said.

Rising costs of building

The cost of building new homes has skyrocketed since October 7, 2023, after Israel barred the West Bank Palestinians who have traditionally comprised most of the construction labor force.

Work on many sites has stopped or slowed as contractors have been unable to replace lost laborers with those from other countries.

“Israel has brought in workers from China or India, as well as Arab Israelis, but there aren’t enough, and the government hasn’t fulfilled its promises to bring in more,” said Nahum Langental, head of the HuMantra Group and a former Knesset member. “In any case, they are much more expensive to employ. A Palestinian Arab costs a company about NIS 20,000 [$5,581] per month to employ, while an Arab Israeli costs NIS 25,000 [$6,976], and a Chinese worker costs NIS 30,000 [$8,372] per month.”

Building materials such as cement, stones, and sand are also more expensive after rising for several years, Langental said.

“The global market will be focused on supplying these materials to Gaza, Syria, and Lebanon, which will make them even more expensive here,” he predicted. “The cost of these materials has already increased by 6%, and it could rise another 6%.”

That means newer apartments will cost much more than secondhand ones, making them less attractive to buyers. The number of unsold new apartments in Israel reached a record high of more than 70,000 units in November, according to CBS.

“The price of construction has gone through the roof,” Friedman said. “The cost of mid to high-end construction had doubled to as much as NIS 25,000 per square meter [$652 per square foot]. That’s just going to fuel future price increases.”

Hot markets

While CBS data shows a majority of apartments being sold in the country’s central district, the hottest markets for high-end sales are in Jerusalem and Netanya, Friedman said.

“The area around Tel Aviv has been rather weak, relatively speaking,” Friedman said. “People don’t want to buy an expensive home in places where missile sirens are relatively common. Jerusalem and Netanya are slightly out of the range of most rockets, and people there are less worried about the short-term risks related to the war.”

Friedman called Netanya “the nicest city that is affordable near the coast,” and noted that more US buyers are choosing to live there instead of just investing in properties. Apartments in Netanya are half the price of those in Tel Aviv per square foot, and 30-40% less than in Herzliya, he added.

The Jerusalem municipality is engaged in an ambitious growth plan that will increase the city’s population by 300,000 in the next 15 years, Paris noted. The city already has aggressive plans to build nearly 500 new skyscrapers above 18 stories, compared to just 30 today, and upgrade its urban infrastructure to handle all of it.

That and virtually insatiable demand from foreign buyers will ensure that prices in the capital keep rising, Paris said.

“It’s going to be crazy,” he said. “I see a lot of demand for pre-sales on new projects, and there is a never-ending infusion of money from America. Everyone in the US who can afford it wants to buy an apartment in Jerusalem.”

Paris added another recommendation for investors. “I think Ashkelon is a very good investment, especially for someone who wants to invest in Israel’s postwar rebuilding,” he said. “It is 30% cheaper than Ashdod because of the fear of rockets from Gaza, but it is 20 kilometers [12 miles] down the road and has the same type of population. You can find apartments on the water in good neighborhoods starting at NIS 1.5 million [$418,600].”

Paris discouraged investors from seeking properties in towns in the north or south, saying there isn’t much available and the market is not very strong. Properties in northern cities like Acre or Kiryat Shmona are risky, depending on what happens with Hezbollah in the future, he added.

Langental, meanwhile, recommended properties in Lod, where his company is currently building 800 units starting at NIS 1.8 million ($502,310) for a three-room apartment.

Tax increases

Home buyers are going to pay more taxes in 2025 after the government passed several reforms that will help it raise the money to pay for the war.

VAT was raised from 17% to 18% at the beginning of January, affecting the purchase price of new construction properties and commercial real estate transactions. That means a buyer will now pay NIS 10,000 ($2,790) more in taxes for every million shekels of the purchase price.

Looking to beat the tax increase, Israelis took a record NIS 13.8 billion ($3.85 billion) in mortgages in December 2024 to get their purchases completed before the deadline. This included a record NIS 3.2 billion ($893 million) taken in balloon loans required by contractors in cases when the buyer put a 10% or 20% down payment for a home under construction.

“A lot of those were taken because, if you are going to need to take that kind of loan anytime soon, it’s best to take it before taxes go up,” Friedman explained.

The VAT increase doesn’t directly affect the sale of secondhand homes, although it may influence price levels across the general market. It also affects service fees for lawyers, architects, and other professional services.

Other reforms will also be costly for some.

High-income sellers with annual incomes will pay higher capital gains taxes on property sales. Currently in Israel, a “wealth tax” of 3% is levied on individuals with annual incomes of more than NIS 721,560 ($201,359). Starting in 2025, an additional 2% surtax will also be imposed on capital gains of that amount for people fitting into that category.

Additionally, the government has frozen purchase tax brackets for 2025. Normally, these brackets are adjusted every year to reflect inflation rates. By keeping the brackets the same as last year, some buyers will effectively pay higher taxes.

Friedman noted that a reform passed in August gives new immigrants a huge tax break on their first apartment that may virtually eliminate purchase taxes for acquisitions of up to NIS 6 million ($1.7 million).