Hamburger Evron & Co.

Contractors are protesting Lapid’s plan: “There is no one in government with the courage to say that patience is needed; instead they gifts are given only to some of the people”

 

“The greatest damage that can be caused by the plan, is until it is implemented”, so says the CEO of Azorim, Dror Nagel, in conversation with “Globes”, “the longer the period from announcement to implementation, the greater the damage will be. There is no doubt that people will stall about buying and perhaps even cancel. I’ve already heard of one couple that cancelled – it’s an obvious step. After all if a young couple with a child know they can get a discount, why would they buy an apartment at the full price now? This also happens when reports of a drop in the fuel price tomorrow at midnight has everyone waiting to refuel, whereas if the price is due to rise tomorrow at midnight, there are traffic jams at the gas stations before the increase. The plan of the Minister of Finance is welcome but if you look into the detail, such as that the government assessor will determine an average price in each area, you have to look at how it’s possible to do this. But one must also understand that the laws of economics will cause the plan to increase the demand for apartments to which the benefit applies, which will quickly also lead to an increase in prices, as after all the number of apartments is limited”.

The CEO of Ashdar, Arnon Friedman, is also of the opinion that the benefit being initiated by Lapid will not ultimately bring about a drop in the price of apartments, not least because it only applies to a small section of the population. “No one in government has the courage to say that you need patience, that you have to wait four to five years until the supply grows so that prices can come down”, says Friedman. “Instead of this, they give away benefits in the short term, that only gift some of the people. Whoever is found to be eligible will win, and all the rest will continue to seek other solutions”.

MK Nissan Slominski, Chairman of the Finance Committee, also believes that the problem in the benefit lies in the fact that only a tiny proportion of the market segment is likely to enjoy it: “We’re talking about a first and welcome step in the right direction, but the outline must be received in full as proposed by Minister of Housing, Uri Ariel, and also include those rising up the property ladder, who account for significant numbers in the market, and without excluding sections of society in general and young couples without children in particular. A limited and partial plan will not influence the market and will not bring housing prices down”.

Friedman believes that the benefit could in fact bring about distortions in apartment prices: “Let’s assume that tomorrow they were to ban contractors from selling apartments above a certain price. Would that solve the problem? It would increase demand and without supply would also increase the problem. Also the fact that a roof is set on the price of the benefit, NIS 1.6 million, will most certainly lead to a situation in which everyone who is close to this price will line up accordingly. If someone is selling at NIS 1.64 million, he will slightly reduce the price, but at the same time anyone selling at NIS 1.54 million will increase to the threshold price”.

Friedman agrees that the Ministry of Finance statement could lead to another period of slowdown in the market: “People will again sit on the fence for two to three months, and in the end demand will again burst through. The greater problem is that as soon as there is such a slowdown period, the contractors will also hold off with new building starts, which will impact on the increase in supply going forward. Instead of bringing in partial solutions, manpower on the committees should be increased and the authorities should be incentivized to give more building permits, perhaps even through a significant financial bonus to a local authority for issuing a permit. One should understand that today many authorities approve only large apartments, which are anyway not relevant for a benefit of up to NIS 1.6 million”.

The plan, it seems, is already having no small number of immediate implications on the real estate industry. According to Attorney Dor Shacham, a partner at law firm Hamburger Evron, despite the fact that this is a complex plan that will take at least six months, given that it involves legislative changes, you can already see its impact on the industry. “The result of the statement is that the market is going to a standstill, and the resulting damages are tremendous”, Shacham says. “We are already seeing advertising campaigns that are being stopped, because, if for example, a consumers club such as Hever, will be interested in partnering tomorrow with a real estate company on a particular project at attractive prices, who would buy an apartment there now? The answer is no one, because everyone will prefer to wait to see if they will enjoy a benefit that amounts to almost 20% of the price of the apartment. The standstill hits advertising agencies and real estate companies. It has happened in the past: when the Government announced dramatic changes in purchase tax, there were periods when buyers avoided the sales offices”.

According to Shacham, it was possible to mitigate damages on the market, and it is still possible, if Lapid would also incorporate into his proposal the retroactive application of the benefit to buyers who meet the criteria, and who have signed agreements to buy a new apartment. “When the purchase tax brackets were reduced by the government, the benefit also backdated to those apartment buyers who had bought apartments up to a certain period in the past, and it is appropriate that the government implements the same system this time too to prevent a complete halt in the purchase of new apartments”. Another issue to which Dor refers to is the fact that the zero rate VAT benefit does not apply to those buying new apartments from purchasing groups. “This is a death blow for purchasing groups, because once a benefit is given to the purchase of apartments from contractors, and it doesn’t apply to buyers of apartments from purchasing groups, it causes a change in the balance, and in the terms between the two, which makes buying an apartment from purchasing groups less attractive. In an area such as Charish, there are projects of both developers and purchasing groups and the VAT benefit will only apply to the developers”.


Yigal Dimri, the owner of Y. H. Dimri, concludes that the proposal will result in a period of waiting in the market: “I think that apartment buyers will wait a few weeks for the Government’s decision and it’s obvious this will bring the market to a halt. But like a bottle of fizzy drink that you shake and from which the foam has to escape, so it will be when the rush for apartments is renewed and the outcome will once again be a rise in prices”.