"I do not underestimate price drops of a few percent, but it is not 20%"

“There is a slowdown in sales and a withdrawal from contracts, which causes the contractor to complete the construction of the project, but he has no money to finish the bank support and move forward,” says Gil Topaz, co-CEO of Altshuler Shaham Credit.

“This is a phenomenon that did not exist a few years ago. There are many projects that reach the end of the road with 30%–40% unsold apartments, and then the developer comes to us and offers us the finished apartments with Form 4 as collateral, and I provide him with credit,” explains Topaz.

“I take the money and with the help of this money he pays off the bank credit and can also move forward and develop additional projects.”

A solution for new market realities

When asked if this solution existed in the past, Topaz responds:

“There were a few deals of this type. The developers did not look for them, because they did not have such a need. And today? The developers are really looking. Three-four years ago there was no such need.”

According to the company, the balance of the credit portfolio of Altshuler Shaham Credit stands at about half a billion shekels, about 62% of which is in the construction and real estate industry.

What type of developers approaches you?

“Everyone. The weaker developers, who find it difficult to get financing, and also larger developers, where we are happier to provide solutions. There are also more established and liquid developers who acquire rights in projects from smaller developers, and we, as a financing body, enjoy being partners in acquisition deals.”

“In Jerusalem the situation is reasonable, in other places less so”

As reasons for the accumulated stock of unsold apartments, he lists the interest rate and the volatility in apartment prices: “October 2023 was a breaking point in very many issues in Israeli society. Since then, prices have been falling selectively: they are falling or remaining at the same level, and certainly not rising.”

“Against this background, we saw an acceleration of financial promotions. Before the 90-10 and 80-20 promotions, a developer received payments according to the progress of the project, and when the project was finished, he had enough money from the buyers to pay off all the bank credit. Today they finish the project with many unsold apartments, and in addition, they suddenly receive requests to cancel the deal,” explains Topaz.

Speculators as a risk factor

Topaz estimates that the potential profits embodied in the 80-20 method and similar ones “attracted a new type of investor, let’s call them the speculators.” These do not behave like regular investors; they are much more aggressive, do not look at yields over time, and set themselves a short-term goal to sell the asset and reap a profit.

“Someone approached me and told me that he purchased five apartments in a project and he needs financing for all of them. It is a private individual who has no ability to get a mortgage in such a scope, because the assets he bought reach a value of 15 or 17 million shekels. He is an employee and saw the purchase of the apartment as the purchase of an option. He paid about 40% of the price, and even this amount he did not bring from home, but took a consumer loan from the bank. The market turned and his considerations too. The cancellations do not surprise me.”

Topaz estimates the speculators at about 10%–15% of the market. “This is actually the segment that in my opinion is very expected to cancel. They will want to cut losses.”

“Young couples have no alternative”

The accepted estimate is that the cancellations will be mainly from young couples, but Topaz disagrees:

“No. A couple that bought a first apartment has other considerations. They give up 10%–20% that they paid and what then? Will continue to live in a rental? They need the apartment. Also among those improving housing, I do not see cancellations in masses. Most of the cancellations will come from the direction of the speculators, who from the beginning did not intend to stay with the apartment. This limits the phenomenon of cancellations to a few percent, and not something that will grow to 20%–30% of the developers' sales.”

In conclusion, Topaz adds: “We are in a process that reflects on the national mood, and this mood is a dramatic factor in the economy. Prices are not in a collapse. We do not see drops of 20% here, but of a few percent, and not that I underestimate it.”