'New BoI measure won't affect first-time home buyers'

Shas construction and housing minister says main obstacle to solving Israel's housing shortage is opening more public land to development.

By JPOST.COM STAFF, SHARON WROBEL
October 26, 2010 12:21
2 minute read.
AN ARTIST’S impression of the Azouri EcoTower superimposed on a photo of the Rehov Hamasger industri

EcoTower311. (photo credit: Courtesy/Andres Lacko)

The Bank of Israel's decision to tighten lending standards for mortgages above NIS 800,000 will not affect young couples purchasing their first homes, Construction and Housing Minister Ariel Attias (Shas) stated during a Tuesday interview on Army Radio.

During his interview, Attias declared that the major challenge towards relieving the shortage of affordable housing in Israel is the zoning of more state land for development. He added that Israel is one of the only countries in the world where the government owns the majority of available land, "except perhaps, I don't know, maybe China."

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On Monday, the Bank of Israel issued a directive that will make most mortgages of over NIS 800,000 more expensive in another effort to stem the surge in property prices and prevent the creation of a “housing bubble” that might eventually lead to a crash in prices.

“The new guidelines were introduced in light of a continued surge in house prices over the past years and the growth in housing credit that exceeds increases in average household income,” Supervisor of Banks Rony Hizkiyahu said, in a telephone interview following the announcement.

“The steps we have been taking over the past year, including the new guidelines, are intended to have an impact on the demand side of the housing market and affect a specific part of the population and not the market as a whole.

“But this will not be enough,” he said. “To have a real impact on housing prices the supply problem in the property market needs to be tackled through the release of land tenders and cutting of construction time.”



Hizkiyahu added that over the past year until August, property prices had surged by 19 percent.

“Developments in the housing market resulted in an ongoing increase in the housing credit portfolio, in particular in the share of credit granted at floating interest rates, and in the size of the average loan,” Hizkiyahu said. “Hence as the interest rate increases, the borrowers’ rate of repayment is expected to increase.

“Buyers who take out a floating- interest loan in a low-interest environment cannot expect to pay interest of 2% forever. We are only advancing interest rate increases that will happen anyway.”

The new directive will not apply to mortgages that were less than NIS 800,000 when issued. Nor will they apply to loans received by those entitled to housing benefits under the criteria determined by the Construction and Housing Ministry.

In practice, it means that mortgage conditions will be tightened for buyers of properties that cost over NIS 1.3 million who take out floating-interest loans.


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