The Bank of Israel warns of "volatility" in the number of transactions in the housing market and in prices in the coming months, because of the zero VAT on new homes plan. Governor of the Bank of Israel Dr. Karnit Flug opposed the plan.
"The housing market policy steps being considered are likely to lead to volatility in volumes of activity and in prices in the market in coming months," says the Bank of Israel in the minutes of the latest Monetary Committee meeting, published today.
The housing item in the Consumer Price Index (CPI) (rents) rose by 3.1% in the 12 months through February. Home prices measured in the Central Bureau of Statistics' survey of home prices rose by 6.3% in the 12 months through January, down from 8% in the 12 months through December 2013.
The Bank of Israel is encouraged by the measures taken in the mortgage market, saying that they have reduced the risk characteristics of loans taken by new borrowers. "The trend of decline continues in new mortgages’ risk characteristics - the loan to value ratio, the payment to income ratio, and the share of mortgages granted at variable rate interest," the minutes state.
As for the zero VAT plan, the Bank of Israel predicts a sharp drop in purchases of new homes in the near term, until the Knesset passes the law. It is also worried by the increase in the fiscal deficit caused by the benefit, which is estimated at NIS 2-3 billion a year.
"There may be a temporary slowdown in activity in the market for homes due to buyers’ preference to wait until the picture becomes clearer. In addition, the committee related to the possible fiscal implications of such measures, and emphasized the importance of maintaining the deficit framework," the protocols state.
Published by Globes [online], Israel business news - www.globes-online.com - on April 7, 2014
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