Discounted housing campaign to be expanded for first-time home buyers

As home prices continue to rise in Israel, the government have increased the maximum discount for those buying subsidized apartments from NIS 300,000 to half a million shekels in relation to the market price. In addition, the percentage of discounted apartments to be built on State Land will rise from 60% to 80% of the total apartments. In order to encourage municipalities in the center of the country to invest in residential development, the percentage of discounted apartments in the cities where the projects are located has been increased to 35%. 

Six months ago, Minister of Construction and Housing, Ze’ev Elkin, launched the new government subsidized housing program, Dira b’Hanacha (Apartment at a Discount). Last week, just days before the dissolution of the government, the Israel Land Authority (ILA), the body that manages land policy, approved a series of decisions that will significantly expand the campaign, both in terms of the volume of apartments that will be sold at a discounted rate, as well as the size of the discount that will be granted to buyers. The council, headed by MK Elkin, made these moves against the backdrop of continued skyrocketing Israel real estate prices, which recently reached an alarming 16% annual increase. Officials also hope that directing more first-time buyers toward discounted apartments will reduce the demand for apartments in the free market.

Of all the policy changes, one of the most significant was the decision to increase the percentage of apartments allocated for discounted housing in any construction tender on State Land from 60% of the apartments, as was the case up until now, to 80%. As you may recall, the subsidized housing program currently operates throughout the country and applies to all State Lands designated for multi-story residential construction, except in the most expensive municipalities in Gush Dan, including Tel Aviv, Ramat Hasharon, and Herzliya.

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Furthermore, the maximum discount that can be granted to buyers was increased from NIS 300,000, according to the original plan, to NIS 500,000. It should be noted that the price per square meter was determined based on numbers from December 31, 2020. The State offers a further reduction of 20% from this price. However, over the last year and a half, real estate prices have jumped by close to 20%, which means that, in practice, the discount may reach 35% in relation to the market price, with a cap of half a million shekels per apartment.

The council also decided to increase the percentage of “locals” among the winners of the lotteries, referring to those who are already residents of the cities where the discounted housing projects are being built. This move aims to encourage local authorities to cooperate with the initiative and approve a greater number of residential construction plans. According to the updated policy, in Target Price tenders in the center of the country, 35% of all units will go to local residents, compared with 25% in the original version. In regions of the “close periphery” (known as Priority Area B), 40% of all discounted apartments will be designated for local residents, compared to 35% in the original. In the towns of the remote periphery (Priority Area A), there was no change – 50% of all units will go to those already living in the area.

In another move that benefits those living in the remote periphery, the ILA  redefined who is considered a “local” in these areas, determining that those living in the municipality for just 18 months will be eligible, compared to the rest of the country, where residents must be living in the locality for at least three years. This decision was designed to create an incentive for people to immigrate to, settle, and develop Israel’s underpopulated northern and southern regions, as well as to reduce demand in the central region of the country.

In addition to expanding the discounted housing campaign, the ILA has made several other significant decisions, the most important of which for homebuyers is almost completely eliminating the link between the price of new apartments built on State Land to the Construction Cost Index. While the actual construction component will still be linked to the index, from the date of signing the purchase agreement with the contractor until the date of the final payment, this change will still have a major impact on the final price of the apartment. This decision is based on an amendment to the former Sale Law (Apartments), which was recently approved in the Knesset in the first reading.

The need for this amendment arose after the Construction Cost Index rose by close to 7% in the last year. According to the standard contracts in the market until now, the total price of an apartment has been linked to the index, although many components of the price, such as the cost of the land and fees and taxes paid by the developer, are not impacted by rising construction costs. The implications for those who bought an apartment “on paper” over a year ago are challenging — an unexpected addition of tens or even hundreds of thousands of shekels to the price of the apartment. Now, as mentioned, a legislative procedure is advancing, the purpose of which is to ensure that the construction costs are the only costs to be linked to the index.

Although these important decisions have been finally approved, we’ll have to wait and see if they’ll actually be implemented after today’s collapse of the coalition. 

To enter the lottery for discounted housing visit the offcial website here.

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The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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