Daily Israel Report

Target Price Program 'Guaranteed' to Bring Down Home Prices

Besides Yair Lapid's VAT discount, the government has another way to help make homes more affordable.
By Yaakov Levi
First Publish: 3/24/2014, 6:24 PM

Construction site
Construction site
Flash 90

Exempting first-time homebuyers from paying value-added tax (VAT) on home purchases, as suggested by Finance Minister Yair Lapid, isn't the only way the government plans to reduce the price of apartments. The government on Monday was discussing another plan, proposed by Housing Minister Uri Ariel, to award land development contracts to builders who guarantee that they can build affordable homes.

The plan, if approved, would expand a current government program, called Price Target. Under the program, builders are given licenses to construct homes on Israel Land Administration parcels if they agree to build, market, and sell homes at a maximum of 80% of the going rate in a market. Under the expanded program, builders will bid for that lowest price – so that the homes they build could be sold at a discount of 30% or more of the market price for a similar home.

The advantage, say proponents of the plan, is that the final price of the home is known in advance. The price of the land for all bidders is a constant, so builders can figure that in to their valuations. The apartments must be specific standards for size, quality of materials, services, etc., so there is no danger of a builder using substandard material in order to build more cheaply.

Under the plan, purchasers of these homes must meet certain criteria, such as have children, and they must hold onto the apartments for at least five years before they sell. However, there will be no “double discount” - apartments built under the Target Price program will not be eligible for the VAT discount.