Small contractors are collapsing due to high leverage and 'on paper' sales

The significant decline in contractor sales began in 2023. In 2024, they found a convenient solution: financing benefits, mortgage subsidies, and other promotions to bring buyers back to the market. In 2024, prices rose by 7.7%, but in the two years that followed, there was a small decline in prices. Anyone who bought an apartment after 2022 is not sure they recorded an increase if they sold it.

The real estate market in Israel has shown a slight, intermittent recovery in the number of transactions in recent months. However, one must look inside and check the nature of these transactions: are contractors buying their own apartments, is it an option to sell, and how many are 'on paper' with a cancellation option?

An analysis of the data reveals a disturbing gap between the potential cash flow and the actual net flow — the money that enters the developers' pockets.

To understand the true picture of construction companies' stability, we will examine the difference between potential and actual flow, two figures usually published by the Ministry of Finance.

Potential vs. Actual Cash Flow

Potential cash flow measures the total amount of contracts signed in a given month (total contractual consideration). It represents 'on paper' sales and actual sales, regardless of when cash reaches the contractor's bank account. If a buyer bought an apartment for 3 million NIS but paid only 20% at signing (under the 20/80 financing scheme), the potential flow analysis counts the full 3 million in the month of signing.

Actual cash flow (based on VAT reports) measures the cash that actually entered the contractor's coffers in that month. This is a report before deducting inputs. After deducting inputs, you get the net flow — the amount remaining in the contractor's hands after offsetting expenses (raw materials, wages, subcontractors, etc.).

According to the Chief Economist's data, the potential flow from new apartment sales in June 2026 stood at 8.7 billion NIS — a sharp 63% jump compared to June 2025. About 19% of the potential flow stemmed from government-subsidized sales.

The flow before deducting inputs stood at 8.3 billion NIS in June (a 35% real increase compared to June 2025). Notably, eight companies alone concentrated a fifth (20%) of the total flow.

Pressure on Small and Medium-Sized Companies

The actual flow amounted to only 1.4 billion NIS. Although this is a dramatic improvement compared to the negative flow of 1.7 billion NIS recorded in June 2025, the gap between the potential flow (8.7 billion) and the actual net flow (1.4 billion) shows that contractors are pouring money into construction inputs and are not receiving the money immediately — but only about 16% of it.

What does it mean that eight companies concentrated half (50%) of the total net flow of the entire construction industry? It means the rest of the market players share the second half, indicating heavy cash flow pressure on small and medium-sized companies. In simple terms: small contractors are leveraged and it is very dangerous, which is why we see them collapsing. Large companies are still holding on and most are selling apartments (albeit in low volume; for example, Kardan sells 8 apartments per quarter to the free market).

In June, a 50% increase in apartment sales was recorded compared to the previous year, when there was a war with Iran. In the free market, 7,550 apartments were sold (a 42% increase compared to June 2025 and 7% compared to May 2026).

Regarding the rate of 'on paper' sales, which affects potential cash flow and lowers current receipts, they stood at 57% of all contractor sales in the free market in June — much less than the peak level in March 2025 (67%), when the Supervisor of Banks' restrictions took effect.

At the end of the week, the Ministry of Finance reported that as of August, 1,821 cancellations of transactions made in 2023-2025 were recorded by the Tax Authority. This is a 41% jump compared to January 2026.