Will apartment prices rise? Definitely. Following the expected increase in VAT, starting January 1, 2025 you will pay more for new apartments. In addition, if you wanted to purchase a new apartment following the contractors' benefits and you pay for it according to the usual payment scale - it is likely that you will receive a bomb in the face, and the discount you built on it will be completely erased due to the increase in the price of the apartment By at least one percent.
I'll explain: following the crisis and the war that led to a stagnation in the housing market, the contractors who want to return the buyers to the market come out with a variety of benefits, with almost all of them offering a convenient payment layout in the form of 20/80, even 10/90 and the like. The meaning is clear: you will pay 20 percent today , and with the occupancy of the remaining 80 percent. In general, an excellent benefit that helps young buyers purchase an apartment with not particularly high equity, and enjoy an expected increase in the value of the apartment until moving in. However, the decision of the Finance Committee of the Knesset from the end of February 2024, according to which starting from - On January 1, 2025, the VAT rate will increase by 1% so that the tax on a transaction in Israel will be 18% instead of 17% today - playing the cards, or rather making them more expensive. It is true that you can make payments in advance, but you have to remember that most people do not have the tools to do so.
Thus, assuming that the developers will most likely not volunteer and will not be able to absorb the price increase, then in a simple calculation for every million shekels in the price of the apartment we will pay another one percent - 10 thousand shekels more, at least. That is, an additional salary. Most of us know that apartments no longer cost a million shekels. Do the math yourself. The interest rate did not decrease in the last decision, and this should also be included in the basket of considerations: is it more correct to absorb the VAT increase, and postpone taking out the mortgage under the assumption that the interest on the mortgages will continue to decrease and the buyers will receive better terms?
Is it time to bring zero VAT back to life?
Let's go back to the zero VAT program on a first apartment, which was born (and died) in 2014 under the same circumstances as today. Even then, the law that was canceled as mentioned was intended to allow the purchase of a first apartment from a contractor without value added tax, after it increased by a percentage to 18 percent. Even then The law was supposed to go into effect under the auspices of the security events and Operation "Trusty Cliff". Not everyone was entitled to this benefit, which was promoted by then Minister of Finance Yair Lapid, but only those who met the criteria, including: a resident of Israel who is the parent of a child; a person who has reached 35 years of age, Even if he has no children.
Let's recall that the damage caused in 2014 as a result of the law was enormous. People waited for the law to be passed and the VAT to be lowered, and in the meantime they froze the purchase of apartments, which caused the market to stop for many months. Finally, when the law did not pass the approval of the Knesset and did not come into effect, there was an explosion of demand that led to an immediate increase in prices. Later, in an attempt to save the situation, the housing price plan, by the finance minister who replaced Lapid, Moshe Kahlon, replaced the zero VAT plan.
In addition, as part of the discussions on the zero VAT law, it was determined that the program will apply to every citizen as long as the value of the apartment does not exceed NIS 950,000, with additional concessions for discharged soldiers and reservists who purchase their first apartment, which can reach a discount value of over 1.5 million This decision also created wall-to-wall problems in the approval of the new law, when the legal advisor to the Knesset at the time, attorney Eyal Yanon, warned that it was a discriminatory law, which harms equality towards populations that do not
serve
. According to him, compensation for the years of service can and should be done by increasing the salaries of the servants and the release grants. Dr. Michael Sharal, the chief economist at the Treasury at the time, who is today the head of the Ecclesiastical Economic Forum, resigned following his opposition to the plan. He warned that the result would be the opposite and apartment prices would actually rise. "The law will contribute to an increase in apartment prices, it will require cumbersome and expensive oversight mechanisms, there There is a good chance that it will pour money into the pockets of the contractors, and in addition will cause great damage to the tax system," he claimed at the time.
Indeed, according to the findings reviewed at the time, since the announcement of the 0% VAT program in the first quarter of 2014 until the end of the third quarter (from March to September) - The prices of new apartments increased by an average rate of about 4%, and the prices of second-hand apartments saw a more moderate increase of 1%.
So why do we want her back?
There were problems, it's true, but does that mean that the zero VAT plan is completely invalid and locked in the drawer of the Israeli government's failures forever?
We turned to someone who at the time worked on the preparation of the zero VAT plan, the former government appraiser Tal Eldroti. According to him, if they start doing it again by dividing it into regions, each region with its own exemption level, this will again create distortions and the exemption level will not be fair to everyone, since the discount on an apartment in Herzliya will be significantly higher than an apartment in Dimona, for example. In addition, on a practical level, he points out, there is currently no government agency that can implement such a complicated project. They can't even find a new chief government appraiser.
He was probably right. However, in my opinion, it is possible to find a way to do it in the settlements of the southern and northern periphery that were affected by the war, in order to encourage settlement in these cities after the war (with the hope that in January 2025 we will already be behind it). In addition, there is certainly room to consider canceling the decree for those who have already purchased and paid a certain amount for apartments in Ashkelon, Sderot, Ofakim, Kiryat Shmona, Shlomi and other places that will be chosen by the government, thus preventing an automatic increase for those who are also on the verge of getting an apartment in Israel . The simple and effective way to provide this benefit is through the reduction of the VAT paid to the Treasury. This benefit will be added to the benefit that was already announced at the recent joint press conference of the Ministers of Finance, Housing and the Interior: an apartment for the reserve officers for NIS 800,000 in the remote periphery.
In conclusion, this will be It is a mistake to ignore the advantages that exist in the controversial plan. There is always room for improvement, and with the addition of certain restrictions, it can be turned into a plan that will generate a significant benefit for young buyers who will awaken the periphery. This is a fairly simple plan. You just need to make sure that the discount reaches the right hands, that is, the apartment buyers.