Knesset to Vote on Lapid’s zero-VAT Housing Bill Wednesday, Before Summer Recess

Residential housing construction near standstill, mainly because of uncertainty in the market over government’s new plans.

Nir Keidar

The proposed law for zero value-added tax on new apartments for first-time home buyers will receive a full Knesset vote on its second and third readings Wednesday – just before the Knesset starts its summer recess.

The Knesset Finance Committee will meet Tuesday to approve Finance Minister Yair Lapid’s bill and send it for final approval. Lapid reached an agreement on the matter Monday with committee chairman Nissan Slomiansky (Habayit Hayehudi).

Lapid and Slomiansky agreed that the law will be implemented as an emergency order for seven years. In Lapid’s original proposal, the law would be permanent, while Slomiansky wanted it to last for only five years, citing predictions that housing prices will eventually come down in Israel.

In addition, the two agreed that the plan to sell large amounts of land below market rates, as part of a “target-price” program to lower housing costs, would last for the next six years, instead of five years as per the original proposal.

Lapid acceded to Slomiansky’s request to also include single family homes – not just apartments – in “national priority areas,” such as near the borders, as long as the contractor builds at least 15 units in the project. This benefit will also apply to a number of settlements. Slomiansky also plans to include “purchasing groups” – those groups that come together to build a project and serve as their own general contractor. He will bring the question to the committee, where it has the support of a majority of MKs.

The VAT exemption is expected to cost the treasury some 2.4 billion shekels ($700 million) a year in lost tax revenues – or 17.5 billion shekels over the seven-year period.

MKs say Lapid agreed to compromise with Slomiansky, or otherwise the Habayit Hayehudi MK would have buried the bill in committee until after the summer recess. Lapid considers the bill to be one of his flagship proposals to lower housing prices, even threatening recently to leave the coalition if the bill isn’t passed.

Lapid’s bill grants the zero-rate VAT exemption to first-time home buyers for less expensive new apartments bought directly from contractors. It also has limitations on eligibility, and the law will apply to new homes worth up to 1.6 million shekels for those who have served in the military or civilian national service for at least 12 months.

Housing sales plunge 40%

Even before Operation Protective Edge started three weeks ago, the construction of residential housing was suffering from a major slowdown and shrouded in uncertainty. The government’s plans to lower housing prices seemingly caused potential home buyers to wait – and building starts plummeted.

Land sales by the Israel Land Authority have also fallen off while contractors wait for the situation to become clearer.

Housing sales have fallen 40%, the Finance Ministry reported Monday. Sales of new residences in May were down 43% from May 2013, and secondhand sales plummeted, too. Since one of the conditions for the zero-VAT exemption is not having previously owned a home, it is clear that many people are waiting to buy.