The war in Israel has led to a complete paralysis in the construction and real estate sector, reaching the "brink of collapse". The sector is worth about USD60 billion, or 13.6 per cent of the GDP.

There are currently about 12,000 construction sites and 168,000 housing units under construction in Israel, according to data from the Israeli "Balad Builders Contractors Union."

The Palestinians are considered the main force in the construction sector in Israel, where there are more than 100,000 construction workers. However, Tel Aviv, the Israeli capital, has prevented them from going to construction sites inside Israel since the Hamas attack on October 7. Financial statements on the Israeli Stock Exchange showed the financial performance of major companies in the construction sector declined, while dozens of small contracting companies collapsed.

The war has also led to a decrease in demand for apartments and a stagnation in the housing and construction market. There is also a crisis in the banking sector that grants loans for the purchase of real estate. The head of the Israel Building Contractors Association, Raul Sargo, warned of "the collapse of some real estate companies and that others will suffer financial damage in light of the war." Sargo noted that before the war the construction sector was in a "bad situation mainly because of high interest rates."

Sargo explained: "The impact of the construction industry on the Israeli economy is enormous", adding that "construction companies are the ones who build the infrastructure of the State of Israel and build schools, kindergartens, bridges and roads".

Departure of foreign workers

Israeli officials and economic specialists said that the current construction crisis is considered "the most severe ever in decades", as the Israeli government seeks to intervene to save the real-estate sector. The Israeli government agreed to bring thousands of foreign workers to Israel instead of Palestinians, amid skepticism that this could compensate for Palestinian workers who have been working in Israel for decades.

The Israeli Ministry of Interior has recorded the departure of about 4,000 foreign workers in the construction sector from Israel since the beginning of the war. The head of the Palestinian Trade Union, Shaher Saad, said: "More than one hundred thousand Palestinian workers have been working for decades in the construction sector in Israel."

Saad expressed his hope that the Israeli authorities would allow Palestinian workers to enter Israel, explaining that their cessation of work "causes financial crises for them and the Palestinian economy." Saad explained that the Israelis prefer Palestinian workers to foreign workers for several reasons, including that the Palestinian workers have experience, and are given their wages in the Israeli shekel currency, not in foreign currency.

Paralysis within the real-estate sector affects Israeli banks, including home loans, which grant more than USD134 billion in loans to purchase real estate in Israel.

Specialists point out that those holders of 117,000 bank loans requested postponement of debt repayments owed to banks amounting to about USD9.7 billion last October, according to the Central Bank of Israel.

The banking sector in Israel is the second driver of the economy

After the technology sector, the banking sector in Israel is the second largest force in the USD521 billion economy. "There is a significant decline in real estate demand due to the war," says Israeli real-estate specialist Dan Kachanovsky. He also explained that the war in the south on the Gaza Strip border and in the north on the Lebanese border has led to a decline in demand for real estate in those areas, even though before the war these areas were witnessing greater demand than the central cities in Israel.

In an effort to save the construction sector, Israeli officials suggested that the government must agree to accelerate increased investment in infrastructure and land. It must also buy housing units in the border areas that would not find buyers in the border areas. Among the measures, the Central Bank of Israel is expected to take a decision to reduce interest rates, which are considered the highest since 2007.

The Central Bank of Israel decided at the end of last October to maintain interest rate levels at 4.75 per cent, despite its awareness of the significant economic consequences of that step. The global credit rating agency, Moody's, warned in a report at the end of last October that the construction industry would expose small banks to risk.

Economic analyst Hani Najm considered that the current crisis in the construction sector in Israel came after it had been subjected to several blows for years. This crisis began with raising interest rates, then with popular protests against judicial amendments. Najm also pointed out that there is a labour shortage in the construction sector and a very significant decline in the demand for purchasing real estate.

Photo: Brand new residential complexes in Israel's southwestern sector (by Adobe).