The Ministry of Housing and Construction's announcement that it intends to publish tenders for land zoned for 3,250 apartments under the "price for tenant" method ought to indicate a new surge in housing starts. However, it turns out that an internal failure in the current tender method sometimes resulted in contractors paying lower prices for land in regular tenders than the prices paid in "price for tenant" tenders, where there is a 50% discount on the price of the land per apartment.
An example of this is the Galei Carmel neighborhood in the Haifa suburb of Tirat Hacarmel, where contractors paid NIS 135,000 per land per apartment, including development, in regular tenders, and NIS 135,000 per land per apartment in "price for tenant" tenders. The price for land in the large "price for tenant" tender in Rosh Ha'Ayin, for 1,200 apartments, was sometimes higher than in recent regular tenders. Similar problems cropped up in a tender in the Haifa suburb of Nesher.
In "price for tenant" tenders, in which contractors compete on the lowest price per square meter for construction, half of the apartments are sold on the free market, and half are sold to eligible homebuyers, on the basis of current criteria. The criteria include number of years of marriage, families with three or more children, and, less importantly, military or national service.
Under the current method, the half of apartments in a project intended for eligible homebuyers, receive a 50% discount on the value of the land up to a maximum of NIS 150,000 per land per apartment, and apartment size is capped at 100 square meters. The other half of the project's apartments are sold on the free market.
This method basically allows a contractor to receive a 25% discount on the price of the land per apartment for the entire project, raising the price of "price for tenant" apartments and lowering the price of apartments sold on the free market. Furthermore, contractors win "price for tenant" tenders on the basis of an Urban Building Plan in which only 20-30% of apartments are intended for eligible homebuyers, rather than 50%. This fact further complicates the pricing and worsens the problem of cross-subsidization.
It should be noted that feasibility of "price for tenant" projects for contractors is doubtful if the projects are near regular housing projects, because the Israel Land Authority recently decided to accept offers at 25-35% of a lot's threshold price in regular tenders, making the calculation even more difficult.
In the wake of failed tenders, Prime Minister's Office director general Harel Locker decided to review the "price for tenant" tender method. A possible, and apparently the only, solution to correct the failure of "price for tenant" tenders is to update Urban Building Plans to state that all apartments in "price for tenant" projects will be for eligible homebuyers. Only this will prevent contractors from cross-subsidizing ordinary apartments and subsidized apartments and ensure that the full discount goes to eligible homebuyer.
Israel Land Authority director general Ben-Zion Lieberman recently told "Globes", "We are aware of the problem. The new tenders method will uproot the cross-subsidy problem, which causes the full discount not reaching the consumer."
Published by Globes [online], Israel business news - www.globes-online.com - on August 23, 2012
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