PM aide: Foreign competition may be used to cut home costs
Association of Contractors and Builders in Israel calls the suggestion to lower housing prices by bringing in contractors from abroad 'ridiculous.'
Prof. Eugene Kandel, chairman of the prime minister's National Economic Council, suggested bringing in major foreign contractors to compete for housing projects if nothing else lowers housing prices.
"The government needs to act with determination to lower housing prices. If we need to, we will take more drastic steps, like bringing big contractors from overseas for major projects here in Israel, and other solutions, like foreign financing," said Kandel in an interview in Banking magazine, published by the Association of Banks in Israel.
"We don't need to dictate to the contractor the price of homes, but if there isn't enough competition that will lead to a drop in prices, the government needs to create it. We are working on solutions in this area," he said.
Kandel reacted cynically to claims by the Contractors Association about the credit crunch affecting the industry, noting that builders themselves were offering homebuyers unusually generous terms that are in effect raising their costs.
"I flip through the pages of the real estate sections in the newspapers. Page after page I see contractors offering homebuyers [the chance] to pay 10% down and the rest in another two or two-and-a-half years when they move into the apartment," he said.
He said the cost of capital for a contractor was 6% or 7% annually. "They complain that they have credit problems," he said. "But the significance of delaying payment is that the contractor is effectively giving the buyer a discount of 12% or 13%. At the same time he isn't ready to give a 10% discount on a cash payment, even if he would profit."
Kandel said this kind of marketing policy on the contractors' part makes new building starts difficult, while on the other hand the public sees that housing prices have barely dropped, if at all. "Contractors have to lower their prices and sell projects within a short time, so then there would be no credit problem."
Kandel's remarks prompted an angry response from the construction industry. The president of the Association of Contractors and Builders in Israel, Nissim Bublil, called the suggestion to lower housing prices by bringing in contractors from abroad "ridiculous."
He said the problem is not lack of competition among local builders, but the lack of competition among the Israel Lands Administration, planning boards, industry professionals and the banks..
Kandel said banks prefer to "sit on the fence" and they appear to be in no hurry to extend credit to building contractors because they see that housing prices are weak. The contractors, he said, are giving buyers indirect discounts, but they are not doing it by simply lowering the purchase price. "As an economist," Kandel said, "I can predict developments based on an economic equilibrium, but in this case, we're dealing with a psychological problem, not an economic one."