MKs Flood Legislature With 'Populist' Real-estate Proposals

Some Knesset members are so troubled by rising real estate prices that the legislature has been awash with bills to cool down the market. Over the past six months, MKs have proposed giving free lots to soldiers at the end of their military service, to issue bonds linked to the cost of apartments, to repeal purchase taxes and reinstate grants to people buying apartments in priority regions, and a whole host of other ideas. In most instances, the proposals are not coordinated with plans proposed by Housing and Construction Minister Ariel Atias (Shas), who is pushing to flood the market with land available for residential construction in an effort to drive down prices.

A review by TheMarker shows that most of the suggestions are doomed to failure even before they are fully aired, and that they were put forward before the MKs promoting them had done their homework. Various sources in more remote areas of the country, who are pleased to hear that the legislators are aware of their existence, are also not thrilled by the proposals.

Yesterday, for example, it was reported that the deputy minister for the advancement of young people, students and women, Gila Gamliel (Likud), is promoting the idea of giving every demobilized soldier a residential lot of a quarter dunam (about a sixteenth of an acre) in the Galilee or the Negev. She said the benefit could be worth up to NIS 150,000, but in some areas in which she proposes distributing the free land, demand is close to nonexistent, and in the Galilee the standard lot size is half a dunam. Although the Upper Galilee regional council has welcomed the bill, a source at the council called it "another populist declaration that is not backed by any sort of budget."

The heads of other communities in the region said their real target population is not demobilized soldiers but young and established families. A source at the Israel Lands Administration said he does not understand how Gamliel's bill could be implemented.

Link bonds to housing

A proposal announced this week by MK Miri Regev (Likud) seeks to repeal value added tax on the purchase of a first apartment up to a price of NIS 600,000. Alternatively, Regev suggests reinstating grants for purchasing in priority areas and subsidies for young couples and buyers in outlying areas. There are, however, a very limited number of places (such as Tiberias, Nazareth and Be'er Sheva) where new apartments can be bought for up to NIS 600,000. Most apartments in that price range are being bought second hand, and such purchases are already exempt from VAT.

MK Carmel Shama (Likud) last week proposed issuing bonds for investors which would be linked to the cost of housing and provide an alternative to investing in residential real estate. "The proposal will increase supply in the apartment market, inasmuch as many investors will prefer the bonds to buying the apartments themselves, so the supply of apartments will grow, bringing down prices, which are set by supply and demand," reasoned Shama.

The idea has incurred criticism from the financial press and the capital markets, however. One senior source in the market said: "There is currently a variety of financial instruments, which includes the real estate business, so that even if an investment firm would take up the gauntlet and create some kind of [investment] instrument, it would be a marginal financial instrument. In addition, there is currently no clear data on the market, and it's not clear how you can link the bond to a specific index that can quantify price rises and declines in various places."

This is not the first time that Shama, a real estate appraiser by profession, has made a proposal related to the real estate market. In October he suggested boosting purchase tax on a second apartment to 7.5%, whereas the prevailing rate on second apartments of up to NIS 873,500 in value is 3%, and 5% for more expensive apartments.

Among the flood of bills is one by MK Yoel Hasson (Kadima) to provide a tax deduction on mortgage interest, which he says will result in savings of about NIS 500 per month per family. Although it was submitted several months ago it has not moved forward in the legislative process. The Finance Ministry says the bill would cost the government about NIS 2 billion.