Government steps in to lower property prices
Posted on 20. Nov, 2010 by Buy-It In Israel Staff in Israel Real Estate
The Knesset
The government has finally realized its promise to intervene in the overheated Israel real estate market in an effort to boost supply of housing in particular for young couples and families and to bring down inflated property prices.
Prime Minister Binyamin Netanyahu together with Finance Minister Yuval Steinitz this week announced three short-term measures, which are mainly intended to encourage the release of private land for construction and speed up the building of new neighborhoods to provide a solution for the shortage in the supply of housing and thereby stem and lower the sharp surge in property prices.
Netanyahu emphasized that the measures were just the beginning of a number of additional measures as part of a package which will be announced in coming weeks. The intervention of the government came after a number of warnings by the Bank of Israel in recent months that a continued surge in real estate prices could lead to a development of housing bubble. Over the past year, Israel property prices have increased by more than 20 percent, while the supply in housing is not meeting demand thereby making it difficult in particular for young couples and families to find an affordable home. For this reason the government decided to implement measures to ease costs and regulation for contractors, builders and landowners in an effort accelerate the release of land and the process of construction.
- In a first move the so-called betterment tax which is levied on the sale of private land will be reduced in 2011 from the current 45 percent to 20 percent for land purchased before and after 2001. The betterment tax is a form of capital gains tax subjected to the sale of land if its value increased due to changes in building rights or upon re-zoning. Until now land owners who purchased land between 1961 and 2001 had to pay tax on land betterment fixed at a maximum rate of 45 percent. On land bought after 2001 betterment tax is set at a rate of 20 percent. Real estate experts reckon that the measure will act as an incentive for landowners to faster release and sell land thereby boosting supply which in turn will lead to lower prices in the market.
- As part of the second measure announced, the government will offer contractors a 15 percent rebate on the price of land tenders issued by the Israel Land Administration under the condition that construction of at least 80 percent of apartments units in a project are finished in a time frame of not more than 30 months. The Contractors and Builders’ Association in principle welcomed the move by the government but said that in practice it will be difficult for contractors to keep within the deadline of 30 months due to lengthy bureaucratic procedures in getting building permits which take over a year and a shortage of professional workers in the sector. The government’s tight policy on the entry of foreigners into the country is limiting the employment of foreign workers who represent the main source of employment in the building sector. The problem of the shortage of foreign workers in the sector is delaying construction work and limiting the ability of contractors to finish projects on time.
- The third measure seeks to simplify regulatory procedures and to provide funding assistance to city mayors and local authority heads so that they are able to advance and speed up development plans and permits for the construction of public spaces and buildings for new neighborhoods and projects such as schools, kindergartens and parks.
With regard to the question of the impact of the introduced measures on the supply side of housing it is clear that although they are immediate measures the situation in the housing market will not change as quickly since construction of new neighborhoods take more than a couple of months. However, the government believes that the measures will have more immediate influence on the dynamics of property prices since in any market also in the real estate market prices are affected by future expectations.
Apart from the three measures announced this week, the government is currently also discussing ways, in form of the provision of incentives, which would encourage contractors to accelerate the construction of small apartments. The shortage in the real estate market of small apartments of three to three and a half rooms at affordable prices is making it almost impossible for young couples or families to buy a first home and thus the government sees an immediate need to introduce measures which would provide a solution for first home buyers.
© Copyright 2010.
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