Industry leaders pan Lapid's 0% VAT housing policy

Critics say the plan is the plan as ineffectual, costly and counterproductive.

JUNE 17, 2014 20:55

Updated: JANUARY 27, 2017 18:13

Yair Lapid (photo credit: Reuters) — Yair Lapid

(photo credit: Reuters)

Real estate industry leaders laid into Finance Minister Yair Lapid’s plan to exempt some new home buyers from paying the 18 percent value-added tax on their homes, panning the plan as ineffectual, costly and counterproductive.

Speaking at the Ernst and Young Real Estate conference in Tel Aviv a day after Lapid’s plan gained approval from the Ministerial Committee for Legislative affairs, critic after critic derided the plan as populist.

“Without taking care of supply and infrastructure, there will be no drop in housing prices following the VAT law,” said Chen Shane, who heads the real estate division of Ernst and Young. In the first quarter of the year, housing starts were down 16% in comparison to the same period the previous year.

The plan, which will go into effect only in September should it pass the Knesset Finance Committee and the full Knesset, froze up the market when it was announced in March, he said, as potential buyers waited to see if they could get an 18% discount on their homes. When demand surges as they come rushing back to the market, it will allow contractors selling to everyone around the country to raise prices.

“I had hoped the VAT program would not go into effect,” said Eliezer Fishman, the controlling shareholder of the Fishman Group. “Now people will always look for more and more VAT benefits, and this thing will destroy Israel’s tax system,” he added, echoing one of the main criticisms lobbed at the plan by the Finance Ministry’s own former chief economist, Michael Sarel, who resigned in protest over the plan following its announcement.

Fishman argued that lowering taxes on the homebuilders would be better, and would help spur home building.

“Does anyone recall one operative step that was taken that already affected the local real estate market for the better?” asked Danny Haring, a real estate lawyer at Steinitz Haring Gurman. Data released by the Bureau of Central Statistics this week showed that housing prices have risen a jaw-dropping 95% since 2007, including an 8.2% rise since Lapid was sworn in as finance minister.

The law’s differentiation between those who have served in the IDF or National Service and those who haven’t has raised questions of legality.

Those who have not served can get the benefit only if the homes they purchase are below NIS 950,000, whereas those who have can buy up to NIS 1.6 million.