Housing discounts favor ultra-orthodox projects

A recent government housing tender in Yokne'am closed at a 20% discount compared with a 63% discount in Betar Illit.

Even as the Ministry of Housing and Construction late last week proudly presented the results of its "price for resident" housing tenders in Yokne'am, and boasted that the tenders closed at a 20% discount - NIS 186,000 per unit - on the market price, no one bothered to mention that the ministry closed similar tenders in Betar Illit, Efrat, and Jerusalem's Har Homa neighborhood - all areas intended for haredi (ultra-orthodox) and religious residents at discounts of 35-63% on the market price, or NIS 530,000-710,000 per unit.

A source involved in the tenders said, "It turns out that too big discounts are being granted to a too limited public, at a time with it is not clear if there are any discounts at all in tenders for the general population."

Moreover, last July, the Knesset Finance Committee, chaired by MK Moshe Gafni (United Torah Judaism), approved NIS 100 million budget source for "price for resident" housing projects. Now, assuming that the amount of the discounts in the few tenders are closed, it seems that the government budget for these projects will run out sooner than expected. In the week since the tenders, the Ministry of Housing has not yet uploaded on to its website the tenders in Betar Illit, even though the tender winners Ashdar Ltd., Eluel Construction Company Ltd., and Traklin Ltd. - told "Globes" that they have been notified of their wins.

According to the results of the tenders closed last week, 91 subsidized apartments will be built in Yokne'am (the Ministry of Housing statement talks about 186 "price for resident" apartments in Yokne'am, but only half of them are included in projects for eligible homebuyers); 107 apartments will be built in Efrat (out of the 213 apartments in the tender); 106 apartments will be built in Betar Illit (out of 211 apartments); and 25 apartments in Har Homa (out of 50 apartments).

The largest discounts were granted in Betar and Efrat, both West Bank settlements. The extraordinary discounts in the two towns are because National Priority Areas receive a 31-51% discount on the land in advance. The use of cross subsidizing (double discounts) adds another 50% discount in "price for resident" tenders, resulting in the value of the land for contractors of just a few tens of thousands of shekels.

Under the tenders' results, the average price of a 100-square meter apartment (the maximum size in a "price for resident" tender) in the Etzion Bloc settlement of Efrat will be NIS 552,000 - a 55% discount on the market price of NIS 630,000 in the town for the 107 eligible buyers. (The market price is based on transactions listed on the Israel Tax Authority website).

A 100-square meter apartment in Betar Illit will be NIS 424,000, a 63% discount on the market price of NIS 709,000.

It is important to note that although the Ministry of Housing prefers to multiply the price per square meter set in the tender by 85 square meters, industry sources greatly doubt that the municipalities, especially of secular towns, will allow the construction of apartments smaller than 100 square meters, a measure that unreasonably limits the number of large apartments in the project.

The winning contractor in a "price for resident" project is the one which offers the lowest price per apartment, after buying the land from the government at a 50% discount on its assessed value. In practice, in a falling market and under conditions of uncertainty, the contractor is not necessarily a winner. There are currently open tenders for 1,202 apartments in Rosh Ha'Ayin and 827 apartments in Modi'in (half of them "price for residents" apartments). These are locations intended for the general population, but sources in the industry and the government fear that these tenders, which do not benefit from cross subsidies, will fail, because the contractor's profit is borderline, the lots are undeveloped, and the marketing will only begin in three years.

"Globes" recently reported that the price of land per apartment in tenders in Rosh Ha'Ayin was NIS 330,000, including development. In ordinary tenders in the town five months earlier, the price of land per apartment was around NIS 250,000. In Yokne'am, there were no bidders for one of the three tenders published. The envelopes for the tenders in Rosh Ha'Ayin and Modi'in will be opened in October, and due to the economic conditions may result in no bidders at all.

Published by Globes [online], Israel business news - www.globes-online.com - on August 22, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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