Corporate credit growth propping up real estate developers
Bank credit to businesses in Israel is growing at a record annual rate of over 15%, the highest since 2010, but analysis shows it is mainly propping up real estate developers rather than fueling economic growth. Meitav Investment House chief economist Alex Zabezhinsky found that banks are driving the entire increase, with credit flowing to real estate and construction companies facing a stagnant housing market and low office demand, raising risk levels.
Bank credit to businesses in Israel is growing at a record annual rate of over 15%, the highest since at least 2010, according to Meitav Investment House chief economist Alex Zabezhinsky. However, this growth is not a sign of a booming economy but rather artificial respiration for real estate and construction companies. Zabezhinsky's analysis of Bank of Israel data shows that banks are the sole source of this credit expansion, with business credit from other sources negative. The credit is primarily flowing to real estate developers who are struggling with a stagnant housing market, falling sales, peak unsold home supply, and rising construction costs. A Bank of Israel study from two months ago found that credit for financing residential projects jumped 40% in one year to NIS 69 billion. Developers have resorted to 20%/80% financing offers to attract buyers. Rating agency Midroog warned that prolonged conditions could diminish project profitability. Zabezhinsky notes that while credit supports short-term economic activity, its concentration in real estate limits long-term growth and may fuel inflation. If interest rates fall and home buying resumes, the situation may stabilize; otherwise, problems could emerge within a year.