Slump in housing sales as buyers wait for tax break

Real estate deals slumped during July as buyers wait and see if Finance Minister Yair Lapid can make good on his promise of 0% value-added tax for first-time home purchases, The Marker reported on Monday.

The finance ministry’s monthly “red Lights” report, that gives a snapshot of the key economic figures and the status of Israel’s economy, showed that 7,700 apartments were sold during July, a drop of 32% when compared to the previous year. A slowdown began earlier in the year after Lapid announced his intention to help young couples buy an apartment by canceling the VAT for purchases that met certain criteria.

Of the apartments sold in July, only 2,600 — a little over a third — were bought by young couples, whereas a year ago first-time buyers made up 44% of the sales for the same month.

Investors and those moving up the property ladder continued to be active in July, albeit at a slower pace. Compared to the same month last year there was an 18% drop in investments sales and a 20% drop in those switching apartments.

By contrast, in Tel Aviv and Jerusalem investor deals increased in July by about 12% compared to July 2013. However, that could be attributed to that fact that in both cities, the lucrative real estate pushes most apartments beyond the range that would qualify for the zero tax bracket, The Marker reported.

In March, the Ministerial Housing Committee approved measures that ministers hoped would lead to a drop in housing prices for first-time buyers. Lapid, who chairs the committee, successfully proposed eliminating the 18% value-added tax for families buying their first apartment, as long as the apartment is new, costs less than NIS 1.6 million ($460,000) including VAT, and the deal is finalized after the new rules take effect.

A second measure called for a change in government housing tenders that could have a dramatic effect on the cost of all new housing.

The plans have yet to be put into effect.