Banks in Israel will no longer be permitted to influence housing prices after signing financing agreements with real estate developers, according to a new decision by a government-appointed committee.
The panel, headed by Avi Simhon, chairman of the National Economic Council, concluded that lenders should not interfere in pricing decisions once a financing deal has been finalized.
“A project’s financial backer is prohibited from influencing a developer’s pricing decisions for apartments in that project after a funding agreement is signed," the panel's final report says. "Accordingly, loan agreements should not include contractual conditions relating to apartment price changes.”
Currently, developers seeking bank financing must submit a “zero report,” outlining a project’s financial viability, including planned apartment prices. If a developer later wishes to lower those prices beyond what is outlined in the report, they must either obtain the bank’s approval or adjust the financing terms to reflect the new risk profile.
The committee included senior officials such as Bank Supervisor Daniel Hahiashvili, Housing Ministry Director General Yehuda Morgenstern, Chief Economist Shmuel Abramzon, Competition Authority Director Michal Cohen and Deputy Attorney General Carmit Yulis.
Bank of Israel Governor Amir Yaron had initially opposed forming the panel, and the central bank issued a rare statement last month warning that government intervention in credit agreements could backfire.
The bank argued such regulation could lead lenders to demand more equity from developers, raise credit costs, reduce housing supply and drive up mortgage rates for buyers of pre-construction homes.
Despite those concerns, the Bank of Israel ultimately endorsed Simhon’s recommendation. Sources at the bank said the committee found no clear evidence that financing agreements themselves were driving housing prices upward.
Still, in what it described as a “cosmetic change,” the central bank agreed to the recommendation to preserve the integrity of project oversight and continue protecting buyers' funds without increasing construction costs or credit risks.
Officials emphasized that bank oversight of developer profitability and risk tolerance will remain, with those conditions still tied to apartment pricing.
Simhon told Ynet's sister publication Calcalist that while not all committee members were convinced the move would lower housing prices, they unanimously agreed banks should not be allowed to influence apartment pricing. “Everyone agreed there’s no justification for banks to be permitted to do such a thing, and no reason not to prohibit it,” he said.
Simhon himself is confident the recommendation will lead to prices coming down. “We’re in an unprecedented period, with an enormous stock of unsold apartments—double what it was three years ago. Why aren’t they selling? Because demand is low on the one hand, and on the other, developers simply aren’t lowering prices. And they’re not doing it because of the banks’ influence. The very fact that a developer has to go to the bank for permission to lower prices has a chilling effect,” he said.
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The recommendation is expected to be formalized in a directive from the Bank of Israel, but Simhon warned, “If for any reason that isn’t possible, we’ll legislate it.”
“Simhon is right that banks can block price reductions. But that’s not what actually happens," a senior industry source told Calcalist earlier this month. "With the right conversation, banks and developers usually reach a balance.
"If you remove the bank’s right to monitor this, it’ll demand a much larger safety cushion, raising financing costs—and ultimately prices. The bank won’t absorb the risk. This protects developers from dangerous missteps. If the rules or income flows change, the bank needs to know. That’s what financial oversight means. If banks are barred from weighing in on prices, they’ll price in the added risk.”
Beyond the core recommendation to separate banks from apartment pricing decisions, the committee also advised promoting competition in housing project financing in the medium to long term. This includes reducing concentration within the banking system and expanding the market share of non-bank lenders. The report stresses that these steps do not replace the need to continue increasing the supply of high-quality housing nationwide.