The TA-RealEstate index navigated a volatile final week of 2025, closing with a marginal 0.34% daily dip as market participants balanced optimism over monetary easing against a cooling physical housing market. While the index has achieved a robust 22.95% annual return, the late-December period has been characterized by a transition from broad-based speculation toward selective investment in long-term infrastructure and urban renewal.

Monetary Easing and the Shift in Buyer Sentiment

A foundational driver for the sector this week remained the Bank of Israel’s decision in late November to deliver its first rate cut in nearly two years, lowering the benchmark to 4.25%. This pivot has already begun to lower financing costs for major developers, with indices reacting prominently as inflation stabilized at 2.5%. However, the “Smotrich effect”—Finance Minister Bezalel Smotrich’s recent threats to double the excess profits tax on banks—introduced new friction, as potential liquidity constraints on lenders could inadvertently tighten mortgage approvals for the real estate sector in the coming quarter.

High-Tech Expansion and Regional Growth Drivers

Regional developments provided significant positive momentum for specific components of the index. Following Nvidia’s announcement to establish a major presence in Kiryat Tivon, real estate professionals anticipate a surge in housing demand across Northern Israel. Simultaneously, the Jerusalem market saw unprecedented activity with the U.S. Jewish community purchasing two residential towers for 200 families and the approval of 1,000 new homes in Katamon. These high-end transactions on Rothschild Boulevard and in spiritual centers contrast sharply with the slump in home sales reported in Southern cities like Beersheva, where free-market transactions fell by 60%.

The Launch of TA-Real Estate 35 and Future Liquidity

A pivotal structural change in the Capital market occurred with the recent launch of the TA-Real Estate 35 index on November 9. This new benchmark, which includes the 35 largest firms by market capitalization, aims to solve the historic lack of passive investment products in the sector. Currently, while real estate accounts for 18% of TASE’s total market cap (NIS 290 billion), only NIS 2.6 billion in assets currently track the sector’s indices. This liquidity gap represents a significant opportunity for institutional growth as the market moves away from speculative development toward responsible urban renewal.

Looking ahead, the outlook for the TA-RealEstate index in 2026 is one of gradual stabilization rather than a sharp surge. Investors should closely monitor the Bank of Israel’s interest rate path, with projections suggesting a potential drop to 3.75% by late 2026, which would fundamentally support property valuations. Key risks to monitor include regulatory uncertainty surrounding the new 18% VAT rate on new homes and the potential for prolonged economic slowdowns to keep transaction volumes at their current 15-year lows. However, the “Intel and Nvidia effect” in the north and the continued diaspora demand for safe-haven assets in Jerusalem suggest that prime residential and industrial segments remain well-positioned for the new year.