At today's meeting, the housing cabinet, headed by Minister of Finance Yair Lapid, approved the proposals for zero VAT on sales of new apartments to first-time homebuyers and target price tenders, so long there are no "multiple discounts" (in other words homebuyers of apartments in target price tenders will not be eligible for zero VAT).
A few minutes after the start of the housing cabinet meeting, the Ministry of Construction and Housing spokesman issued a statement detailed the target price plan, which Minister of Housing Uri Ariel initiated almost a year ago, and which Prime Minister Benjamin Netanyahu praised yesterday. The target price plan will be submitted to the housing cabinet for approval in 20 days. The ministry says that apartment prices in target price tenders will be 20% below the market price.
The Ministry of Housing emphasizes that there will be no eligibility criteria homebuyers in these tenders, but that real estate investors will not be allowed to buy these apartments. In addition, buyers of new apartments in these tenders will not be allowed to sell them for five years. The Ministry of Housing will oversee apartment specifications to ensure their quality.
"Since 2009, home prices have risen 64%. This is not a rise in prices, it's a scheme," said Lapid at the start of the meeting. "Israel and the Israeli government were partners in this scheme, and profited from it, but they are also the parties that have decided to end it. The housing cabinet was established to break this scheme. We must lower home prices.
"In the long term, supply will solve this crisis. In the short term, zero VAT on new apartments for young couples and the other supplementary measures that will be submitted to the cabinet today will do this."
Governor of the Bank of Israel Dr. Karnit Flug, who opposed Lapid's plan, said at the meeting, "The basic problem in housing is the supply. The increase in the supply, as the past two years have indicated, with an emphasis on high-demand areas, is going the right way. The principles of the target price plan will achieve the home prices target. It will help increase the supply of apartments, and will send a credible message to the public that the government is acting to lower prices, even at the cost of lost revenues.
"We welcome the intention to set up a team that will draw up the target price proposal, which will affect home prices. There are disadvantages. The first is that implementing the plan will increase demand for new apartments… There will be pressure on prices and in the absence of price controls, much of the benefit will not reach homebuyers. Supervision is problematic.
"The strong extra demand will give some buyers an incentive to pay on the side, creating a black market in order to obtain the benefit."
Flug concluded, "The eligibility criteria do not benefit the poor, and the higher prices that they will cause will make things harder for poor families. We're talking about a permanent benefit. Because it requires about legislation, even if it turns out in the future that the benefit is ineffective, political reality will not allow the cancellation of the benefit, just as today it is impossible to cancel exemptions, such as no VAT in Eilat. The measure has a large budget cost and the source of financing must be found."
Ariel said, "There is agreement that the issue of marketing is central. There is no disagreement on this point. We're constantly dealing with this.
"I am pleased that we agree that the two plans will operate together. There are other things to solve on the matter of VAT, such as various groups that are not included in the plan, but we will reach agreements in the legislation."
Published by Globes [online], Israel business news - www.globes-online.com - on March 24, 2014
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