Young Jerusalem Home-buyers Say Builders Exploiting Government Incentives

Buyers say contractors have raised prices by tens of thousands of shekels in wake of municipal plan to establish a NIS 100,000 grant for new buyers.

The ink hasn’t yet dried on last month’s agreement between the finance and housing ministries to establish a NIS 100,000 grant for first-time home buyers in Jerusalem, but the program already appears to be missing its mark.

Intended to help young families buy an apartment in one of the country’s priciest cities, policymakers apparently failed to realize that in a market characterized by limited supply and strong demand, other forces would be quick to grab the benefits for themselves.

Since the grant program was approved, complaints from young people looking to buy their first home in the capital have been received by the Housing Ministry, members of the Jerusalem city council and TheMarker. The complaints say that at several Jerusalem housing developments, contractors have raised prices by tens of thousands of shekels.

Several complainants said that when they asked why the same apartment was suddenly being sold at a higher price, the response was that the buyers were eligible for the government grant and could use it toward the purchase price.

The subsidy program was the brainchild of MK Meir Porush ‏(United Torah Judaism‏), who initiated the legislation in 2001. The law was in force for two months before being frozen repeatedly by the Economic Arrangements Law accompanying the budget. But on May 5, it finally went into force, though only until tomorrow for most homes, due to treasury objections ‏(it will be in effect until October 31 for homes priced at less than NIS 1.8 million‏).

The Housing Ministry is investigating the allegations of price gouging, but it isn’t clear what sanctions it can impose on developers acting in this manner.

Amir Avraham, an accountant who has been renting in Jerusalem for 10 years and has spent more than a year looking to buy a home, said that in two different projects in the Pisgat Ze’ev neighborhood, prices jumped by NIS 50,000 to NIS 80,000. “The assistance grant to young couples has turned into an assistance grant for builders,” Avraham wrote in a letter to Housing and Construction Minister Uri Ariel.

He said he scheduled a meeting with the sales agent for one of the contractors and asked her why the prices of the apartments had jumped, but received what he called an “infuriating” response: “’You have a NIS 100,000 grant from the Housing Ministry that you can use and thereby effectively pay the original price.’”

Avraham told TheMarker that the project in question is called Al Hachoresh, sold by Y.D. Barazani. He said a five-room apartment was priced at NIS 1.72 million before the grant was publicized and rose to NIS 1.79 million afterward.

The sudden price increases haven’t gone unnoticed by residents of Pisgat Ze’ev, where many new projects are now on the market. An article headlined “Who profited from the Housing Ministry grant?” appeared last Friday in the local weekly Kol Hapisga.

In it, reporter Shai Ben Ami compared current ads for projects in the neighborhood with those that ran about a month ago. A difference of tens of thousands of shekels could be seen for all of them.

For instance, a four-room apartment in the East Pisgat Ze’ev project now selling for NIS 1.085 million was advertised a month ago at NIS 1.045 million, or NIS 40,000 less.

Practice is widespread

A salesman involved in several neighborhood projects, who asked to remain anonymous, said the practice is widespread. “That’s how it always is with grants of this type,” he said. “Buyers and developers split 50-50.”

“On taking office, I held meetings with the heads of the Israel Builders Association and the country’s top builders,” Housing and Construction Minister Ariel said yesterday in response. During these meetings, he continued, both officials at the Builders Association and building industry executives told him that the high prices hurt them, too, so they would support his efforts to lower them.

“So it is upsetting to hear about the hike in prices and the unjustified raking in of profits at the expense of young couples whom the grant was meant to benefit,” Ariel said. “I call on the heads of the Builders Association to take unequivocal action against this phenomenon so that I’ll know their intention is genuine cooperation, and if not, I’ll reach the necessary conclusions.”

Yossi Baron, CEO of Y.D. Barazani, denied the accusations leveled by buyers and termed them “tendentious.”

“The project they are talking about was entirely sold out and not a single one of the buyers took advantage of the grant,” he said. “While it’s true that the aid helped us to sell homes generally, it helped us because we didn’t raise prices.”  

AP