Southern Jerusalem Neighborhoods

Will the new VAT exemption on new construction for  young couples bring prices down overall?

Speculation is in the air regarding the effect that the new proposal by Finance minister, Yair Lapid, will have on housing prices.  In central Jerusalem, land is scarce so new construction is rare, and those projects that are being built are catering to the luxury end of the market, with prices starting at NIS 30,000 per sqm.  The average young couple must therefore look at peripheral areas of Jerusalem in order to find affordable housing.  The three southern neighborhoods of Jerusalem, Har Homa, Armon HaNatziv, and Gilo, naturally attract young couples since prices range between NIS 1,000,000 for second-hand properties, and NIS 1,200,000 for new construction.  Three-room apartments in some of older buildings (3rd and 4th floor walk-ups) can even sell as low as NIS 900,000 in some cases.  Sales in the southern neighborhoods have been strong in both the new and second-hand markets for the last 5 years.  The new law proposed by Lapid is a positive step in the right direction, but it has many limitations and requirements, and, in the end,  will benefit only a small portion of the buyers in the market.  According to Rachel Gluck, RE/MAX Vision real estate agent, who specializes in the Southern neighborhood of Armon Hanatziv, “ Young couples are buying in the peripheral neighborhoods mainly because of lower prices and more rooms for their money.  The VAT elimination will definitely make new construction more desirable to young couples, but the exemption has so many limitations, that very few qualify.”

Many wonder if all the new tax incentives and regulations are helping bring the prices in the market down, but realtors do not see  any slowdown.  Alyssa Friedland, Broker-Owner of RE/MAX Vision states,  “In order for a real and significant change to happen in the real estate market, the government needs to make changes in the permit process and the release of more plots of land to allow building to take place.  Red tape and government  regulations are hindering the building process, and as a result demand is still very heavily outweighing supply.  The best way to curb the price escalation is to create more supply than there is demand. As soon as the government understands and responds to this issue effectively, prices will stabilize and even start to come down.”