The bank supervisory department at the Bank of Israel (BoI) had identified a new trend. Groups of individuals were coming together, obtaining mortgages to buy empty plots of land then hiring a developer to build new properties on it. Rony Hizkiyahu, the BoI supervisor of banks since November 2006, did not like what he saw.
"When banks finance a real estate developer, they have industry concentration limits. But because they were financing these developments through retail mortgages, there were no limits. And under Basel II, banks have 65% capital relief on mortgages, so they could charge low interest rates. It was cheap money - low capital costs, low rates - fuelling the construction industry," he says.
