Modi’in: A Test Lab for Cutting Prices

Almost 12,000 new homes planned in the next decade; zero VAT and ‘target prices’ expected to bring down prices.

Gil Cohen-Magen

The city of Modi’in, located about halfway between Tel Aviv and Jerusalem, is the government’s experimental laboratory for its programs to reduce housing prices.

At the start of the year the state and the city signed an agreement aimed at accelerating the sale of building lots for 11,800 housing units slated for construction over the next decade. Of these, 5,000 are scheduled for sale by the end of 2015.

Finance Minister Yair Lapid’s proposal to eliminate value-added tax on the purchase of new apartments priced below 1.6 million shekels ($460,000) is relevant for Modi’in, where many homes sell for less than the maximum for this benefit.

Some local real estate agents say the “umbrella agreement” with the state is nothing new; they say the affected lots were already part of existing plans, and that the 10-year building forecast merely reflects the normal rate of new housing starts in recent years, some 1,200 a year. On the other hand, the psychological impact of such a declaration on home buyers is nothing to be sneezed at.

Another government initiative is “target price” land sales in which the state sells land for housing at a lower price while the developers promise to sell the apartments built on these lots for 80% of the median home price. In a place such as Modi’in, in which there is a large supply of state land planned, such tenders could reduce housing prices.

The zero-VAT plan will also directly affect sales of secondhand homes. While new apartment prices in Modi’in are high, it is still possible to find some apartments at 1.5 million shekels, near the upper limit of the VAT exemption. Buyers who are eligible for the benefit will prefer to buy a new apartment from the contractor without the VAT instead of a secondhand apartment, goes the reasoning.

Reaching the limit

Even before all these headlines, there was a feeling in Modi’in that the large rises in housing prices were reaching their limits, and it was taking longer to sell apartments. Prices in Modi’in crawled upward over the past year, but by no more than 5%.

The most expensive real estate transaction in Modi’in in the past year was for a seven-room house of 175 square meters on Dan Street.

Prices in the Buchman neighborhood remain the highest in the city, with a four-room apartment going for 1.8 million shekels to 2.1 million shekels, and five rooms for 2.1 million shekels to 2.6 million shekels. Prices in the Malibu area are a bit lower, but steady.

Kaizer has prices similar to Malibu, but also has an interesting phenomenon: The area has relatively small units, but a large religious population in the neighborhood keeps demand high. Here four rooms can cost 1.55 million shekels to 1.8 million shekels, and five rooms 2 million shekels to 2.4 million shekels.