Minister of Finance Yuval Steinitz has decided to set up a VAT refund fund for guarantees under the Sales Law (Apartments), 5733-1974, which should free up NIS 6 billion in credit for real estate developers.
"The measure is expected to increase the number of housing starts and lower the cost of raising credit by contractors and developers, which should affect home prices," said the Ministry of Finance in a statement.
Under current Bank of Israel regulations, banks are allowed to invest up to 20% of their credit portfolio in real estate. The banking system's ability to lend credit to contractors has hit a wall, because most banks have reached this 20% limit, or even exceeded it. The lack of credit is affecting housing starts, which is seen in the failure of Israel Land Authority tenders for lots for building.
The Bank of Israel restriction includes Sales Law (Apartments) guarantees, which are issued to homebuyers against the purchase proceeds of their homes. These guarantees and the payments include VAT, and under Bank of Israel regulations, the lending bank must recognize the VAT as part of the credit granted to the real estate sector, because there is no guarantee that the VAT will be refunded.
Steinitz instructed the immediate establishment of a fund that will guarantee the VAT refund to the banks, and this money will not be calculated as part of the bank's credit risk. This means that the banks can grant an extra NIS 6 billion in credit for real estate projects.
Published by Globes [online], Israel business news - www.globes-online.com - on July 4, 2012
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