The Ministry of Finance has announced the extension of its buyer fixed price program and development subsidy grants for local authorities, together with grants to be given directly to apartment purchasers. These measures, an expansion of the original plan, are aimed at increasing state subsidies in outlying communities, where the land discount is not enough to create cheaper apartments. A resolution in the matter is expected to be brought to a vote in the upcoming housing cabinet meeting scheduled for next Monday.
Under the new proposal, in places where the value of land is low, NIS 40,000 development grants and NIS 40,000-60,000 grants for apartment purchasers will be given. The Ministry of Finance announcement did not specify in which places the subsidies would be given, or how the grant would be given to the purchasers.
The original plan of Minister of Finance Moshe Kahlon resurrected the old buyer fixed price model, and applied it to all the land tenders published by the state. In buyer fixed price tenders, the contractors and developers compete for the lowest bid for the final apartment, while a discount is given on the land provided by the state in the tender.
The main problem with this format is in places where the value of land is low or negligible, making the discount in the land price ineffective. This situation necessarily leads to discrimination between the central region and the outlying areas. In areas of high demand, where land is expensive, the land discount is likely to also lead to a significant discount in the final apartment price for those eligible, while in the outlying areas, the land discount and the cheaper price for apartments are insubstantial.
"The government and the Israel Land Council have made a number of decisions in recent years about marketing at a reduced price, among them decisions about marketing according to the buyer fixed price method, the tender creating competition between contractors over the cheapest price per apartment, while maintaining a low and constant land price," the Ministry of Finance said today.
"At a meeting of the ministerial committee on planning, construction, land, and housing on June 22, 2015, the committee passed a resolution about extending the plan for housing at a reduced price. The resolution says that as a rule, the buyer fixed price method will be used for land suitable for marketing. It establishes brackets for discounts according to the value of the land. A revision of this decision is being proposed in the current resolution for extending the discount brackets up to a maximum rate of 80% of the land's value.
The resolution also says that for apartments marketed in the buyer fixed price plan in its new format, grants will be allocated and subsidies granted for the development costs for purchasers of apartments in high-density construction on state land that meet the Ministry of Construction and Housing's eligibility criteria. These grants will be provided in communities where the value of the land does not exceed NIS 100,000, in view of the relatively low discount to be given to these purchasers under the new buyer fixed price plan. According to the resolution, the grant for someone purchasing an apartment in these communities marketed under the new buyer fixed price plan will be NIS 40,000-60,000, while the development subsidy will be NIS 40,000. This is in addition to an 80% discount on the value the land in these locations."
The Ministry of Finance explains that these land discounts, combined with grants for buyers and development subsidies, should lead to a NIS 200,000 discount on for the end consumer, given the effect of the plan on the purchase tax, VAT, marketing expenses, and the developer's profit. The Ministry of Finance also said that the Israel Land Council will determine the grants and discounts according to the current value of the land, starting in June 2015.
Kahlon said today, "Our young generation also has rights, not only duties. Housing is a basic right, and it is our obligation to supply it. The plan will change the tender method , and create a massive supply of apartments earmarked solely for young couples in both outlying areas and high-demand areas."
Published by Globes [online], Israel business news - www.globes-online.com - on July 8, 2015
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