0% VAT plan for first homes advances as housing prices soar

CBS report finds housing prices up 95% since 2007; prices rose 8.2% over past year, since Lapid became finance minister.

June 16, 2014 17:53
2 minute read.
An accountant [illustrative photo]

An accountant calculator taxes 370. (photo credit: Ivan Alvarado / Reuters)


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Finance Minister Yair Lapid’s much maligned plan to exempt some first-time home-buyers from the 18% Value Added Tax progressed on Monday, as new data showed home prices have continued to skyrocket.

The price of homes has increased an astonishing 95.4% since 2007, according to the Central Bureau of Statistics latest Price of Dwellings Index.

Bringing down the cost of housing, which fueled 2011’s summer street protests, has been a central policy goal for Lapid, but so far he has made little progress. In the twelve months until April, which approximately represents the time Lapid has been finance minister, prices rose 8.2%.

The International Monetary Fund has warned that home prices in Israel are overinflated.

The Ministerial Committee for Legislation approved the bill, setting September 1, 2014 as the starting date for the benefit, as well as updated eligibility criteria. The exemption will only be applicable for married or common law couples with at least one child who have never owned a home, where at least one member of the couple is over the age of 35.

The maximum price for an apartment for those who served in the IDF or national service will be NIS 1.6 million, but for those who have not served it will be NIS 950,000.

A prior version of the bill set the maximum price for those who have not served at NIS 600,000, drawing criticism that it was systematically excluding Arabs and ultra-Orthodox.

It is unclear whether the High Court of Justice will uphold even the updated provision should it be challenged.

An online system for checking eligibility will be put in place to help buyers and sellers sort through the details.

“Lowering housing prices if a national goal,” Lapid said following the bill’s advancement Monday. “Today we passed an additional stage in the legislative process that is part of a program that the housing cabinet is heading to bring down the cost of housing in Israel.”

The cabinet has also signed a series of “umbrella agreements” to fast-track largescale building and fund infrastructure development in certain cities, and is working on a bidding system to force contractors to lower sale prices to new buyers.

Economic leaders, however, have blasted the VAT plan as populist and ineffectual. The Finance Ministry’s chief economist resigned in protest over the plan, saying it would do little to lower prices and create a fiscal pit. Bank of Israel Governor Karnit Flug, the government’s chief economic adviser, said it would spur already booming demand, which would raise prices, instead of helping build further supply.

In more encouraging news from the supply side, the Finance Ministry on Monday settled details with the Israel Lands Authority and Defense Ministry on a plan to move Sde Dov Airport from northern Tel Aviv to Ben-Gurion Airport by 2017. Sde Dov sits on prime real estate between the posh Ramat Aviv neighborhood and the sea. It will be replaced by construction projects that include 16,000 new housing units, as well as commercial establishments and hotels.

The government also eliminated height restrictions around the airport, which is expected to add an additional 6,800 units in the vicinity.

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