Lapid considers scrapping new homes VAT for young couples

Exemption would save young couples with at least 1 child 18% on homes; Foreign Ministry expects legislation will take 3-4 months.

Yair Lapid  (photo credit: Reuters)
Yair Lapid
(photo credit: Reuters)
Finance Minister Yair Lapid is pushing for young couples purchasing new homes to receive an exemption from the 18 percent value-added tax.
The exemption would be limited to young couples with at least one child in which at least one member served in the IDF or national service and at least one member is working.
It would only apply to new homes that are below the average price in the area, and it forbids the couple, who must be Israeli residents, from selling the property for five years. Bachelors over the age of 35 looking to buy a new home would also be eligible.
The change, which would reportedly cost the Treasury NIS 2 billion, would require legislation that the Finance Ministry estimates will take three to four months. It is possible that the Supreme Court would block it, given that its requirements would leave out most haredim and Arabs.
This is just one of a handful of steps that the ministry plans on unveiling as part of a program to bring down housing prices.
In February, The Jerusalem Post reported that the government was considering VAT exemptions to bring down housing prices.
“One idea we discussed at high levels for putting money on the table is to reduce the VAT,” Housing Minister Uri Ariel told the Post at the time. “Now it’s at 18%, so say we reduce it, maybe not the whole way but part of the way, for certain apartments, depending on the specific places we want to encourage.”
Lapid and Ariel predicted that housing prices, which have risen some 80% since 2007, would plateau toward the end of 2014 and start to fall in 2015.
They have embarked on a series of “umbrella agreements” with certain cities to fast-track building and fund necessary infrastructure upfront. They created another fast-track mechanism for large building projects.
The VAT-exemption proposal was met with mixed reactions among builders.
Eli Avisror, the chairman of the Negev and Beersheba contractors organization, praised the move for its immediacy.
“This solution is one that can change things from today to tomorrow,” he said. “You don’t have to wait four to five years. I hope the process succeeds and am sure that at the end of the day there will be significant reduction in prices.”
But several industry sources said the move did not tackle the fundamental problem in the market: increasing the housing supply.
“I don’t think this relief will provide a comprehensive solution to the housing crisis that exists in Israel,” said Effie Shaked, CEO of Effie Capital. “The necessary action is increasing the housing supply, both by increasing the amount of land marketed by the Israel Lands Authority and by reducing the amount of time it takes to build.”
Israel needs 6,000 more foreign constructions workers to come in if it wants to do that, he said.
Others expressed skepticism over the efficacy of introducing multiple policies through the political process. The constant barrage of new policy ideas simply created uncertainty in the market, they said.
“The government is floating another trial balloon every day,” said Roni Brick, chairman of the Sharon contractors organization. “Yesterday we read that the government would give NIS 100,000 to home purchases of up to NIS 1.5 million, and today we hear that the Finance Minister is giving up the VAT for first-time buyers... It’s time for the government to publicize actions, not promises.”