The real estate dream is collapsing: a 41% jump in cancellations of apartment purchase deals

The number of real estate deal cancellations has jumped by 41% since the beginning of the year, with the overall cancellation rate reaching 3.6%. The Be'er Sheva and Tiberias areas have recorded the highest rates of contract terminations. According to Galit Ben Naim, Deputy Chief Economist at the Ministry of Finance, only 40% of apartments have reached their planned delivery date, with standard cancellation penalties typically set at about 15% of the apartment price.

The tempting financing schemes offered by contractors in recent years are beginning to collapse. The premise was simple: pay only 10% or 20% of the price at the time of purchase, with the balance due years later upon completion. The strategy relied on the assumption that property prices would continue to rise, allowing buyers to sell at a profit before the final payment was due.

However, market conditions have shifted: price growth has stalled, financing costs have increased, and many buyers are reaching the payment deadline unable to secure the necessary funds. Real estate marketers currently offer clients two primary options: sell the rights to the apartment before the payment date or cancel the deal and pay the agreed-upon penalty of approximately 15%.

A recent review by the Ministry of Finance shows that cancelled deals rose from 1,294 in January to 1,821 by August. The overall cancellation rate has climbed from 0.5% in 2021—a record year for sales—to 3.6% today. Notably, the highest rates are occurring in peripheral areas like Be'er Sheva and Tiberias, rather than in the center of the country.

"Some of the buyers hoped to make some kind of turnover on their equity through a price increase that did not materialize. And now, when the moment arrives to pay the balance, some of them prefer to absorb the cancellation fee and exit the deal," said Ohad Danos, former chairman of the Real Estate Appraisers Chamber.

Since most buyers who purchased in the last three years have not yet reached the delivery date, many have not yet been required to prove they have the necessary financing. This poses a direct threat to the cash flow of contractors, who rely on these payments to repay bank loans.

The Bank of Israel has attempted to curb this phenomenon; last year, the Banking Supervision Department imposed restrictions on financing promotions, including limits on subsidized balloon loans. Despite these measures, such promotions still account for a significant share of sales: over a third of deals in the central region and nearly a third in Netanya are still conducted with deferrals of approximately 80% of the payment, without any guarantee that the buyer will be able to fulfill the obligation.