Odiel Malchi
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“Housing at a Reduced Price” – Two New Programs by the Israeli Government

Odiel Malchi

In the past few months, the Government of Israel approved two new programs called “Housing at a Reduced Price”, which will replace the previous Mechir Lamishtaken program. Both new programs will operate on a lottery eligibility system. The first of the two new programs are quite similar to the Mechir Lamishtaken (price per occupant) program, affording rights to purchase an apartment from a contractor at a lower than market value. It will have the same rules and terms as Mechir Lamishtaken for the buyers. The second program entitles the winners to buy an apartment priced at up to 700,000 NIS in certain peripheral cities, with an additional grant of 100,000 NIS from the government towards purchase of the apartment.

Other than the approval itself, few details have been released to the public. In December, the Israel Land Authority approved MK Yaakov Litzman’s (Minister of Construction and Housing) plan of “Housing at a Reduced Price”, but reduced the number of available apartments in each project. About 50% of the apartments in all projects that are being marketed in the new programs are going to eligible lottery winners, while the other 50% will be sold to the public at market value as compared to 70%-80% going to eligible winners in the previous program. The main reason for this is the limited budget that the Israeli government is giving the Ministry of Construction and Housing for the programs. Since September, when the first plan was announced to the public, MK Litzman and MK Yisroel Katz (Minister of Finance) have been in negotiations regarding the budget. MK Katz finally signed off on the deal on December 6, 2020.

As can be inferred from the name of the new program, “Housing at a Reduced Price”, it doesn’t offer much of a discount compared to the previous Mechir Lamishtaken program. The maximum discount that one will receive if they win and buy an apartment through the new program is 400,000 NIS. Mechir Lamishtaken offered discounts on many projects in prime cities that ran between 600,000 NIS to 1 million NIS.

The main difference in this new program, compared to the previous, is how the Israel Land Authority administrators the bidding of selling the land to the contractors. While this may not seem to directly impact the eligible winners, now the government has increased the price of the land for the contractors, mainly in the peripheral cities. This translates to higher final costs for the buyers. Also, this time around, the program won’t have projects in Tel Aviv, Ramat Hasharon, Herzliya and Ra’anana. It will essentially be available only in cities where the cost of a square meter would be less than 20,000 NIS i.e. the peripheral cities.

Another difference between the two programs is that, until now, apartments of the same size in the same project were all sold at the same price. This created a situation where the least desirable apartments took time to sell. Apartments with better views and on higher numbered floors should cost more than those on lower floors, without a garden and with poor natural light. In the new program, contractors will be allowed to vary the price per square meter by up to 10% within a project. The Israel Land Authority decides on the maximum profit the contractor can make from each project, while the contractor decides how to price each apartment.

One notable improvement in the new program is that by the time the lottery occurs, the contractors will have already obtained the building permits (heter bniya) for the project. Under the previous program, people who won the lottery had to wait years before they could sign on a contract. In fact, currently only about half of the winners (i.e. about 39,000 out of 78,227 since 2015) from the previous program’s projects have building permits.

This was the biggest problem with Mechir Lamishtaken. Dozens of projects nationwide were delayed by wrangling between local authorities and regulators. These delays accordingly held up the supply of homes in Israel, which subsequently contributed to their continual price increase.

Under the previous program, the Israel Land Authority wasn’t always successful in their attempts to sell land to contractors in the peripheral cities. In a few cities such as Dimona, Afula and Netivot, the increase in the number of apartments (5,896) that were to be sold through Mechir Lamishtaken had a negative impact on the market due to the surplus of apartments. The value of apartments in these cities has gone down. As a result, the new programs raise many questions as to whether they will be successful as they are only really relevant to the peripheral cities.

The idea behind these programs is that winners would need less of a down payment for the purchase. For example, a winner in one of the future lotteries in Lod will need to pay, based on a 28% discount from the program, 1,132,934 NIS for a 100 square meter apartment with a market value of 1,450,155 NIS. On an apartment appraised at that price, 70% financing means they will be entitled to receive a mortgage of 1,015,108 NIS, and the total down payment required would be just 117,826 NIS (which works out to just over 8%!). A minimum down payment of 100,000 NIS is required for all projects from the different government programs, and homes can’t have an appraisal value of more than 1.8 million NIS.

In the last two weeks, the Ministry of Construction and Housing has picked up the pace, successfully selling the land for the apartments which will be marketed in the new program. A total of 5,200 new apartments, spread across the cities of Eilat, Ofakim, Bnei Brak, Adam/Gevah Binyamin, Rishon LeZion, Ramat Gan, Lod, Nazareth, Bet Shemesh and Ma’ale Adumim will be available in the upcoming lotteries.

The lotteries for the first program will most likely take place in March of this year, and will be much more appealing to the general public since the chance of winning is much higher than the second program (which will only have 160 winners) and many projects will be located in Central Israel.

In order to apply for the lotteries of the first program, one needs a Teudat Zakaut (Certificate of Eligibility). A valid Teudat Zakaut from the previous program is also sufficient. Most applicants should be able to be apply online for a Teudat Zakaut, with a physical appearance needed only to present certain documents. Three different companies, Alonim M.G.A.R., Shikun Milgam, and Amidar, can issue the Teudat Zakaut needed for entering the lotteries.

The second program’s lottery date hasn’t officially been announced yet, but my sources in the Ministry of Housing and Construction say they expect to finish the negotiations with the Ministry of Finance by the end of this month. Once the budget is approved, they will immediately post a lottery date. The date that they’re aiming for is January 25th. Due to the current COVID-19 crisis, the Israeli government isn’t in a position to fund large grants, and only 16 million NIS are dedicated to this program for this year; meaning there’s only enough for 160 winners to receive the 100,000 NIS grant. Registering for the second lottery is done through the Ministry of Construction and Housing’s website (http://www.moch.gov.il/), where one can also find updates posted about the matter. Here, one needs to present a different type of Teudat Zakaut within 30 days of winning the 100,000 NIS grant, and this step is done after winning for this second program.

All in all, the new programs will be more expensive than the previous, but, at the same time, some improvements have been made. Contractors will now have some flexibility with the apartment prices, with a portion having to be sold at a specifically discounted price. Winners won’t have to face the uncertainty about building permits, and this makes it easier and more efficient for the contractors to market the projects to the public.

Until now, many projects in peripheral cities haven’t been great investments, compounded more so by the continuous rise in prices. Therefore, these programs will be of the most benefit to people who plan to actually live in the apartments. It is also important to note that even though the government is supposed to check the contracts of these programs, many contractors try to sign winners on problematic contracts. It is essential to hire a lawyer, other than the one the contractor requires you to use, so you have a lawyer aligned with your needs. It can be a long and difficult process, and having a mortgage consultant to guide you through it all is essential.

About the Author
As an experienced and highly qualified mortgage broker and financial consultant, Odiel Malchi understands the intricacies and nuances of the Israeli financial regulations. Having arrived from New York at a young age, Odiel's cultural and language background make obtaining a mortgage perfect and seamless. Odiel holds a BA in Business from Machon Lev (JCT) and is in the process of getting an MBA in Finance. He is also a member of the Financing Advisors Association for Mortgages (hfca.org.il). Starting from the ground up at the big Israeli banks, today he works as an independent consultant for those banks, specializing in mortgages for business and foreign clients. Today his main focus is Malchi Mortgages, focusing on catering to the English-speaking community in Israel and abroad.
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