Daily Israel Report

Ministers Agree on VAT-Free Housing

Housing and Finance ministers agree on landmark bill to eliminate VAT for first-time home-buyers, but not everyone is happy.
By Gil Ronen
First Publish: 5/22/2014, 7:05 PM

Cutting housing prices down to size
Cutting housing prices down to size
Flash 90

Minister of Construction and Housing, Uri Ariel (Jewish Home), and Finance Minister Yair Lapid (Yesh Atid) have reached agreement on a bill initiated by Lapid, which would eliminate all VAT on apartments purchased by first-time homebuyers.

The bill is to be brought before the Knesset by August 3, Ariel promised Thursday. The program for selling 0% VAT apartments will include 46,000 units, including units for rent, and will be brought before the Israel Lands Authority in the coming weeks. It is seen as a significant step in solving Israel's housing crisis, with young couples and other first-time buyers often priced-out of the market altogether. 

It comes just a week after Ariel lauded his ministry's record construction in Jerusalem in 2013, saying that more building was the best way to bring down prices in the expensive capital.

Ariel spoke at the annual conference of contractors in Eilat, where he said the maximum price for apartments in the program will be 16,000 NIS per square meter.

The Knesset has yet to debate the bill, which currently gives the discount only to people who served in the military or whose next of kin served in the military – thus excluding many Arabs and hareidim.

As a compromise to ensure that the plan withstands a High Court test, Lapid announced earlier this month that individuals who have not served in the IDF will also be eligible for the exemption – but only for the purchase of homes up to NIS 600,000 (roughly $170,000) in value.

According to the plan, first-time homebuyers would save 18% (the amount of VAT) on homes, and would be prohibited from selling the house for five years.

The exemption will cover homes up to NIS 1.6 million (roughly $450,000) in value.

The plan was supported by Housing Minister Uri Ariel, providing the discount was given to all home-buyers, including hareidi and Arab Israelis.

The president of the contractors' federation attacked the initiative, claiming that since the idea was floated, it has become impossible to sell apartments because people are waiting for it to pass. In the meantime, he said, many contractors could go bankrupt.

The Bank of Israel estimated that the VAT discount would cost the state 2.5 billion shekels in revenue.