The cabinet is due to approve at Sunday's meeting a decision to grant a 50% discount on land prices in Ministry of Housing and Construction "price for resident" tenders, which are designed to help persons eligible for ministry benefits (such as young couples and new immigrants). For the first time, the government will subsidize the price of land in these tenders, in order to further reduce the price of homes in "price for resident" tenders so as to help young couples and families to buy an apartment.
In the "price for resident" tenders method, the discount directly reflects the final price of a home, because there is no competition over the price of the land, whose price is given. Developers compete directly to build homes at the lowest price, pursuant to Ministry of Housing specifications and supervision.
The Ministry of Housing said, "Apartment prices in price for resident tenders will be reduced by hundreds of thousands of shekels. The decision will come into effect immediately on price for resident tenders, and contractors will be able to compete for the lowest price per home and pay only half the cost of the land. Expert assessments estimate that the discount will mainly affect high demand areas, where the price of land accounts for 40-50% of an apartment's price. The reduction could therefore amount to hundreds of thousands of shekels in high demand areas, with an emphasis on young couples and people who don’t own a home."
Minister of Housing and Construction Ariel Atias said, "For the first time, the government realizes that it can and should pay out of its own pocket for the land in order to achieve the dream of young couples and people who don’t own a home to buy an apartment."
The Ministry of Finance said in response, "This proposal deals with price for resident tenders. In these tenders, the price of the land is set by the assessor, and not by the tender. The development costs are set on the basis of estimates. The proposal states that, for the first time, in these tenders the state should subsidize the apartment prices by foregoing half of the income from the land. The proposal is effectively a budget bypassing grant for homebuyers to the tune of hundreds of millions of shekels a year. It will cost the state revenues and increase the budget deficit. It should be noted that, in certain tenders in various areas (high demand areas), the value of the proposed benefit could amount to hundreds of thousands of shekels per housing unit.
"Morever, this a regressive grant that increases in line with the increase in value of the purchased property."
Published by Globes [online], Israel business news - www.globes-online.com - on March 9, 2011
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