Treasury Proposes Incentives for Developers to Build Quickly

As part of the attempt to hold down housing prices, the Finance Ministry is putting together a package of moves to calm the real estate market.

As part of the attempt to hold down housing prices, the Finance Ministry is putting together a package of moves to calm the real estate market. Two of the biggest steps under consideration are providing contractors and developers with financial incentives to speed up construction, and reductions in betterment tax on property purchased before 2000.

The treasury is now leaning toward accepting Housing and Construction Minister Ariel Atias' proposal to reimburse developers part of the cost of the land if they complete construction within a specified period. Similar incentives were used during the great wave of aliyah from the Soviet Union at the beginning of the 1990s.

The finance and housing ministries want to include a set discount in the ministry and Israel Land Administration tenders for finishing construction on time. This proposal is expected to be discussed at the ILA's next board meeting on November 15, and the ILA will most likely approve it then. The expected discount on the cost of the land would be 15% for projects completed withing 30 months. Completion would be determined by the contractor receiving approval from the local authority that the residences were finished - the so-called Form 4. The contractor would pay 85% of the price of the land upon winning the tender, and put up the additional 15% as a deposit, to be returned if the target date is met.

Another proposal is to change planning and zoning in areas outside the center of the country. Officials want to increase the number of single-family homes to be built at the expense of apartments in the periphery, making outlying areas more attractive to better-off segments of the population. There is no shortage of cheap, low-quality housing in outlying areas today. The ministries want to attract middle-class buyers who have a hard time financing apartments in the center of the country, but can only do so by offering them a significant improvement in quality of life in the periphery.

But some of the developers' requests are unlikely to be accepted. These include increasing quotas for foreign workers in construction and special planning and building committees to speed up the planning and licensing process. Similar special planning committees did speed things up significantly in the 1990s, but at the expense of the quality of the planning and construction. The Justice Ministry also objects to such a controversial change.

Senior treasury officials, including Finance Minister Yuval Steinitz, Director General Haim Shani and the head of the Israel Tax Authority, Yehuda Nasradishi, met this week with a number of major Israeli developers on how to lower housing prices. Among those at the meeting were Nisim Bublil, president of the Association of Contractors and Builders in Israel; Gil Dekel, the CEO of Africa Israel; Yoram Keren, the CEO of Kardan Real Estate; Alfred Akirov, the owner of Alrov Real Estate; and Uri Dori, the CEO of U.Dori Group.

The developers reiterated their claim that most of the problem is on the supply side - a shortage of land available for construction - and demanded that the state speed up the pace of land sales. Treasury officials now seem to agree that this is the heart of the problem, but they do not have any specific proposals to speed up marketing land - beyond the proposed reforms in the Planning and Building Law, which is still being debated in the Knesset.

The developers objected to all the proposals to increase taxes on housing. Some politicians have proposed raising taxes on properties for investment purposes, which they say would reduce demand - but the developers are very sceptical. The ministries are interested in improving the position of young couples looking to buy at the expense of those investing in real estate, and the treasury is considering how to make such investments less profitable.