Home Sales Decline in First Third of the Year From Record Pace in Late 2013

Young couples holding off until VAT exemption comes into force.

Gil Eliyahu

Although 2013 was seen as a record year for home sales, the first third of this year was marked by a sharp downturn in the number of homes that changed hands, the Finance Ministry reported Tuesday.

Some of the drop has been attributed to a natural market correction. It is also thought that some home buyers may be sitting on the fence, waiting until the government implements two programs to lower the cost of new homes. One would exempt qualifying first-time purchasers from value added tax, and the other is to provide developers land at below market prices if they commit to selling the homes they build on them at below market rates. In addition, some potential buyers have been priced out of the market.

In the first three months of this year, 25,600 homes were sold around the country, 21% fewer than in the record-setting final quarter of 2013, the Finance Ministry said. And in April, the number of home sales dropped by 25% compared to March of this year. Leading the trend was young couples, who bought 26% fewer homes in the first quarter of 2014 than the final quarter of 2013. Although usually young couples represent about 40% of all home purchasers, in the first quarter they comprised 37% of buyers.

The prospect of an exemption on the 18% value added tax on new construction would not have been a factor for most of the first quarter in motivating first-time home buyers to wait for the legislation to be enacted – Finance Minister Yair Lapid only announced the program at the end of the quarter. The proposed plan would exempt first-time buyers on homes of up to 1.6 million shekels ($466,000) from VAT if they meet certain conditions, notably prior military service or civilian national service.

Among the locations where new homes have been selling for 1.6 million or less in significant numbers are Be’er Sheva, Ashkelon, the Haifa-area towns of Tirat Carmel and Kiryat Ata, and the community of Harish near Wadi Ara. In Tel Aviv only a fifth of the new apartments sold there fetched up to 1.6 million shekels. Forty percent of the Jerusalem sales met that maximum, as did 45% of sales in Netanya.

By April, the Finance Ministry’s plans for the VAT exemption were public and this was considered a factor in the decline in the number of sales for the month on the part of young couples. The ministry said the fact that the week-long Passover holiday fell during April this year would have also slowed the pace of sales. The number of sales to buyers purchasing for investment purposes also declined by a fifth, but in the Tel Aviv area the pace actually picked up. The second-hand residential real-estate market declined by 25%, a much steeper drop than the rate of new home sales.