While many in the coalition and opposition have come out against Yair Lapid's plan to exempt young couples from VAT, claiming that the move will only cause prices to rise, perhaps unintentionally, things are actually turning out for the better, and the fruits of the plan are already ripening, long before the plan is implemented.
Indeed, in the last month alone, a 451% decrease in demand for apartment purchases was reported.
This result is, of course, young people refraining from buying an apartment due to the hope that they will be able to realize a discount of hundreds of thousands of NIS with the implementation of the zero VAT program.
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For those who haven't been updated yet: This is a program that will exempt buyers from paying VAT, while contractors will receive VAT refunds even without receiving VAT from the buyer.
Initially, the program was specifically intended for military veterans, and provided a VAT discount for the purchase of an apartment up to the cost of an apartment of 1,600,000 NIS. However, following Housing Minister Ariel's roar about the discrimination against the Haredim (without understanding where the favor fell on his head), the decision was recently made to also grant VAT exemption to citizens who had rejected or resigned from military service. This placed the Haredim homeless in the category.
However, the amount will be limited to only 950,000 NIS for the cost of an apartment, for which a discount can be received.
Contractors will be forced to lower prices
Take, for example, the city of Beit Shemesh, which has been developing at a dizzying pace in the past two years. Over the past year and a half alone, contractors and groups have won approximately 2,700 units in Ramat Beit Shemesh A and C2. Most of them have not yet been sold. This total number of units does not include the housing price auctions.
Although the expected prices in Q2 were supposed to be around 850,000 NIS per apartment, it is estimated that the VAT plan will force contractors to lower prices (if they want to participate in the VAT exemption) to 0.95% from the government appraiser's estimate, in order to accelerate the sale of apartments.
According to Tax Authority data, which the government appraiser also relies on, the average index for a new 3-room apartment is 770,000 NIS, reflecting 10,000 NIS per square meter for a 77-meter apartment.
In order for the apartments to participate in the zero VAT program, the contractor must present a price of approximately 730,000 NIS for a 3-room apartment. However, due to the reduction in VAT, the buyer will only pay approximately 620,000 NIS.
For a 4-room apartment, contractors will be forced to lower prices to less than NIS 950,000 - which is a nice achievement even for someone who is not eligible for VAT exemption.
The price that the homeless will pay for a 4-room apartment is 805,000 NIS.
The last time apartments were sold at such prices was around 2008.
Will affect second-hand sellers
Is there any better news than this? Of course, such a result directly affects all sellers of second-hand apartments, who will be forced to lower prices, following increased competition from developer apartments.
For the residents of Modi'in, known for its high recruitment into the IDF, the situation is a little less good and the criticism directed at them is more correct. Although there, too, about 3,000 apartments are expected to be sold on the market in the coming year, the average price for a new 3-room apartment is too high and stands at 1,360,000 NIS.
Elia and Kotz, if you were thinking of making a go of it, you will need to be patient and long-suffering. According to the program's regulations, residents who purchase an apartment will not be able to sell the apartment until after 5 years.
All we can hope for is that the plan will be published soon, and in parallel with it, a 'target price' plan.
• Moshe Revach is the co-CEO of Empiria Real Estate and Finance, which develops and manages real estate ventures 02-6222255
