The housing cabinet is promoting an especially creative solution for apartment purchasers in the framework of the buyer fixed price tenders in which tenders are awarded for the lowest apartment prices rather than lowest land pricers. In recent days, the housing cabinet contacted the banks and probed with them the possibility of calculating mortgages for apartment purchases under the buyer fixed plan (by decision of the Minister of Finance, this includes all state tenders until further notice) according to the market price of the apartment, not the actual price achieved in the tender. The prices that have thus far been obtained for apartments in the buyer fixed price plan were 35% lower.
Following the closing of the tender in Kiryat Motzkin last week, Minister of Finance Moshe Kahlon said that the price there would be NIS 940,000, instead of the market price of NIS 1.4 million.
Under the new proposal, if a couple buys an apartment under the buyer fixed price plan, it will receive a mortgage from the bank amounting to 75% of the higher price - in other words, a mortgage whose financing element will reach 100% of the price actually paid for the apartment. One example cited by Kahlon involved a NIS 1.5 million mortgage, compared with NIS 705,000 calculated according to the lower price.
Subsidy instead of equity
In Afula, the price mentioned is NIS 640,000 for an apartment, compared with a market value of NIS 980,000, and the buyers can receive a mortgage of NIS 735,000, instead of only NIS 580,000. It can be assumed that the market price to be set for a buyer fixed price apartment will be lower than the true market price, due to its limited specification, but it can also be assumed that that financing will be 90-100%.
This seems to be a way of evading the financing restriction imposed by the Bank of Israel Supervisor of Banks, but housing cabinet head Avigdor Yitzhaki explains that since the purpose of the restriction was to protect the banks against excessive exposure to the real estate market, this purpose is fulfilled in practice, because if the bank forecloses the property, the price that the bank receives for it will be derived from the market price of the property, not the actual price paid for it.
The housing cabinet is also promoting an initiative to subsidize interest on supplementary government loans for the purpose of making it easier for those declared eligible by the Ministry of Construction and Housing to buy an apartment, even when they lack the required equity. Sources inform "Globes" that when the subsidy is included in the calculation, the annual interest rate on the loans will vary from 1.79% for the shortest loans (10 years) to 2.8% for the longest loans (25 years). This interest rate is real and index-linked.
The budgetary cost of the proposal being prepared in advanced of discussion in the Knesset Finance Committee is likely to reach NIS 200-250 million. The added budget cost results from the fact that these loans are currently almost never taken, because the government charges higher interest on the loans than the going bank rate (3-4%). The Ministry of Finance, believes that lowering the interest rate will multiply the number of those seeking these loans many times over.
These are the solutions of which Kahlon spoke last week at the Knesset Finance Committee as measures designed to replace the bill proposed by MK Orly Levi-Abekasis (Yisrael Beitenu), which would put the financing percentage for mortgages back up from 75% to 90%. Orly Levi-Abekasis asserts that the Bank of Israel and the Ministry of Finance are indifferent to the fact that the equity being raised by young couples is not money from home, but loans they are taking from family members, friends, banks, or private credit companies at higher interest rates than the rates for mortgages, and without examining their ability to repay the loans. The Ministry of Finance strongly opposes increasing the financing component in mortgages, because it says this will again generate upward pressure on housing prices.
Published by Globes [online], Israel business news - www.globes-online.com - on November 3, 2015
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