Ministry Targets New Initiative for Cheaper Homes to Start in December

‘Target Prices’ aims to offer homes for 20% below market value, but in controversial move purchasing groups are banned from participating.

Hagai Frid

The first of the government’s so-called “Target Price” tenders, aimed at putting homes on the market at 20% below market value, is likely to be published as early as December, after the Housing and Construction Ministry released preliminary terms for the program yesterday.

The plan, under which the government will sell land to builders at lower prices, on the understanding that they will pass on the saving to home buyers, is slated to lower prices for some 66,000 new homes in towns like Rosh Ha’ayin, Modi’in and Yavneh in the center of the country, as well as Haifa and the Krayot (the three Haifa suburbs) in the north.

The Target Price tender is one of the government’s two main initiatives for stemming the rise in house prices, which have risen about 7% in the past year alone. The second – Finance Minister Yair Lapid’s controversial plan to exempt many categories of home-buyers from the 18% value-added tax on a new home – is still awaiting Knesset approval.

Lapid (who has been heavily promoting zero-VAT) and Housing and Construction Minister Uri Ariel agreed not to put the Target Price plan into effect until lawmakers have approved the zero-VAT plan. Assuming it doesn’t get ensnared in the Knesset, as it has until now, that should happen next month.

“This new system for marketing [land] will offer new and quality homes 20% cheaper than the market prices today, while creating attractive tender conditions for contractors and builders,” said Ariel, adding in a reference to the zero-VAT plan. “This is an egalitarian program open to all sectors and answers the needs of those seeking to upgrade their housing.”

The preliminary terms released yesterday included a key concession to the building industry by banning purchasing groups and nonprofit associations from bidding in the Target Price tenders. These groups buy land for their members, and contract builders to develop housing on it. Nevertheless, Yisrael Zaira, chairman of the Forum for Organized Purchasing Group, said he was hopeful this would be amended.

“At a meeting we had a few months ago with [Housing Ministry director general Shlomo] Ben Eliyahu, he made clear that, initially, the tender would not be open to purchasing groups because of the legal complications, but that he would find a solution,” Zaira said. “I am confident the director general and minister will keep their promise.”

The Israel Builders Association declined to comment on the Target Price plan yesterday, saying it was still studying the terms.

Nevertheless, the ban on purchasing groups was the second victory for builders in a week, after they convinced the Housing Ministry to soften the standards for homes built under the terms of the zero-VAT plan, which will enable them to cut construction costs to meet the 1.6 million-shekel ($430,000) top price for homes that qualify for the exemption.

On the other hand, the Target Price terms dealt a blow to contractors by banning homes built under the initiative from being sold “on paper” – that is, before construction has begun or the developer has received a building permit.

That restriction will make it much harder for many contractors to get financing, a source said. Banks usually require builders to have sold a certain number of on-paper sales before they are prepared to grant a loan to cover construction costs.

“It means leaving the area of planning and building to a handful of contractors with the most capital and slamming the door shut to the great majority of contractors in Israel who won’t be able to get enough bank financing,” said David Amir, an attorney with S. Biran & Company in Tel Aviv.

The plan bans contractors from accepting payments from buyers to get the reduced-price housing or imposing extra requirements on buyers – measures aimed at preventing a black market developing for Target Price or zero-VAT homes.

Target Price homes, the Housing Ministry said, will be priced 20% under the local market price for homes, as determined by the government property assessor. In any tender, between 60% and 80% of the homes built on the land will be subject to the restrictions, with the builder free to sell the remainder at market value. The homes will have floor space of no less than 60-square meters and no more than 150, and be sold at more than 2 million shekels before required discounting.

Only first-time buyers and people buying a home to live in, as against invest in, will qualify. Specific terms will be decided for each tender, the ministry said.