The VAT hike to 17% on September 1 will temporarily cool the housing market by raising prices, Bank Leumi said today in its weekly macroeconomic survey. It said that the VAT hike will not only raise prices for new homes, but also for second-hand homes, by raising renovation and transaction costs (such as realtor and lawyer fees).
Bank Leumi said, "The VAT hike will raise the construction cost of new homes, as well as the costs of improving existing homes, such as renovations and maintenance. The VAT hike will also raise buyers' costs for both new and second-hand homes, by raising transaction costs (such as realtor and lawyer fees). These factors are liable to affect both supply and demand, resulting in a temporary cooling of the market after the tax hike is implemented."
New home sales totaled 1,377 units in June, above the monthly average of 1,200 units in January-May. The housing inventory stood at 15,600 homes in June, while the rate of sales in the first half of the year was 14,900 homes.
"The monthly supply level has been 12,000-13,000 housing units a month in recent months," says Bank Leumi. "This is a monthly supply level that in the past characterized a sharp reduction in pressure on prices. The Central Bureau of Statistics home prices survey, based on sale prices reported for betterment tax, indicate that the rise in home prices slowed to 2%, after a long period of rising prices."
The bank added, "The fact that official data show that home prices are still rising, albeit very slowly, is partly linked to the fairly low level of mortgage interest rates, and therefore supports demand for homes. The rate of increase in the supply of new homes has also slowed, according to housing starts data and transactions approved by the Israel Land Authority since the beginning of the year, resulting in a weakening of the forces that could contribute to a drop in prices in the market."
Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012