The first tender in the target price plan in Rosh Ha'ayin is scheduled to get underway this week, after the cabinet this morning gave final approval for the plan. Another tender will later be issued for the towns in the Modi'in area. While the 0% VAT plan promoted by former Minister of Finance Yair Lapid (Yesh Atid) has lapsed, the cabinet today approved the target price plan initiated by Minister of Housing and Construction Uri Ariel (Jewish Home). The disassociation of the target price plan from the 0% VAT plan made approval of the former possible. In contrast to the 0% VAT plan, the target price plan was widely supported in the National Economic Council and the Bank of Israel, and among senior economists. Under the plan, land will be marketed to developers at discount prices, who will undertake to sell the apartments to those eligible at a 20% discount on the market price.
The government instructed the Ministry of Construction and Housing and the Israel Land Authority to issue target price tenders by the end of 2015 for construction of 20,500 housing units. At the demand of Ariel and National Economic Council head Prof. Eugene Kandel, it was decided that the target price apartments would be allotted by lottery to those eligible, with preference granted to those without housing, but those who already have housing can bid for all the apartments, in contrast to the Ministry of Finance's proposal that quotas be established in advance for each of the two groups.
Under the agreements between the government ministries, the preference to be given to those without housing over those with housing by a ratio of three to one will make it possible to market all the discount apartments, even in places where the apartments are more suitable to one of the target groups.
The Ministry of Financed questioned whether the program would succeed. Today, after the plan was approved, the Ministry of Finance said, "The plan was coordinated with the Ministry of Finance, which is formulating understandings on a series of matters. The plan will ultimately be judged by how it is implemented in practice. At the same time, the Ministry of Finance emphasizes that the key to stopping the rise in housing prices and bring them down is increasing the supply of housing and boosting the pace at which it is marketed by the state."
Due to protests in towns in outlying areas, which feared that they would not be included in the plan, the government decided that the tenders would take place in places where the value of land per housing unit was over NIS 60,000, instead of NIS 80,000 per housing unit in the original proposal; this change will add towns in outlying areas to the plan. At the same time, the addition to the plan of places like Kiryat Gat and Harish, where land prices are low, is still not settled. The government also decided that housing units priced at up to NIS 19,000 per sq.m. would be included in the target price tender.
Under the cabinet decision, the contractors will undertake to sell 80% of the apartments at a discount of at least 20% on the average price in the area, as determined by the government appraiser, as of October 1, 2014. Bidders in the tender will compete for the highest price for the land being sold, and will be committed to a bargain price and specifications determined by the Ministry of Housing and Construction, which reflect the currently accepted market standard.
The plan's success is a major test for the government in general, which has been in office for two years, and especially for Prime Minister Benjamin Netanyahu and Ariel. Both made statements soon after taking office that housing prices would fall as a result of the government's actions, a prediction not borne out neither over the past two years, nor during the previous government's term, when the Minister of Housing and Construction was Ariel Atias, who also stated at the beginning of his term that housing prices would undoubtedly fall. The plan's success is also a big challenge as a result of the fact that the previous "resident's price" track, which was based on the same principle of the purchase of land at a discount in exchange for a commitment to sell housing at a discount did not affect housing prices, due to the fact that those eligible for discount apartments were mostly haredim (ultra-Orthdox Jews), and that land was marketed only on a small scale.
How to bid in the target price tender
When the tenders are closed three months from now, and the winning developers obligated to sell at a discount are announced, the public will be informed in which areas there is a supply of housing, and at which prices. The winning developers are obligated to display the apartments, the specifications, the blueprints, and the price on a special website immediately after the winners are announced, and the buyers can choose already in the coming months whether to register for the lottery and take part in it. At the same time, keep in mind that the lotteries themselves will take place only after a building permit is obtained for the projects, i.e. in another year. The Ministry of Housing and Construction therefore says that there is point in immediately obtaining a certificate of eligibility.
Published by Globes [online], Israel business news - www.globes-online.com - on December 21, 2014
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