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Home Prices Tumble as Buyers Wait for VAT Discount

Yair Lapid's ideas on eliminating value-added tax (VAT) payments is already bringing home prices down, as buyers hold out for a better deal.
By Moshe Cohen
First Publish: 4/3/2014, 9:49 AM

Yair Lapid
Yair Lapid
Flash 90

Even before the legislation has passed, Finance Minister Yair Lapid's ideas on eliminating value-added tax (VAT) payments for first-time home buyers is having the desired effect. As legislators debate the final form of the law, potential buyers have decided to hold back on home purchases – and with business down, builders are offering discounts of as much as 15% on new homes in many parts of the country.

According to Lapid's plan, value-added tax (VAT) would be eliminated for first-time apartment buyers. Families who get the discount would have to hold onto the apartment for at least five years. This measure is intended to prevent couples from buying apartments for the purpose of trading in them. VAT is currently 18%. Lapid's plan would provide the discount to Israelis who had at least one family member who served in the IDF.

With buyers certain that the proposal will eventually become law, many have pulled back on plans to buy homes, real estate industry officials said – and for homes up to NIS 1.6 million ($460,000), considered as priced for middle-class buyers, sales have essentially dried up.

Tzemach Hammerman, which has several projects in Beit Shemesh, for example, is offering an across the board 11% discount on homes priced from NIS 1.2 million to NIS 2.25 million. A builder in Yehud is offering for sale homes at an 18% discount – the same discount buyers would get with Lapid's legislation – and in Lod, prices on nearly all new homes are down an average of 15%.

Sales are down even in generally popular areas, like Holon and Bat Yam, said industry officials, and builders there are open to negotiating deals with buyers.