State Initiative Aims to Slash Apartment Prstarts by Hundreds of Thousands of Shekels

Introduction of Payment Installments for Developers

In a groundbreaking move that may significantly lower real estate prstarts, the Israel Land Authority (RMI) is set to allow developers who win state tenders the option to pay for land and development costs in installments. This initiative is aimed at reducing the financial burden on contractors and ultimately lessening construction costs, with expectations that these savings will be passed on to homebuyers.

Economic Impact of the Payment Structure

According to estimates from the Contractors Association of Israel, this measure could reduce building costs by between 100,000 and 200,000 shekels per apartment. This has been a long-standing request from the association to ease financial strains on developers who often wait years to receive land permits. By extending the payment period, developers can avoid high interest rates on loans taken to cover immediate land costs while they await necessary infrastructure development by the state.

The economic implications are substantial, as the additional wait time often translates to increased costs in apartment prstarts-amounting to hundreds of thousands of shekels per unit. For instance, industry data suggests that over the past decade, the average waiting period from land acquisition to the commencement of construction has reached three years, with some cases extending beyond a decade.

Case Studies Highlighting Cost Savings

The Contractors Association presented specific cases to bolster their claims. For example, developers acquired land in the Shada Dov area of Tel Aviv, intended for luxury apartments, for 2.1 million shekels per housing unit. Current prstarts for such apartments are around 8 million shekels. With existing average market interest rates standing at approximately 8%, this wait can lead to significant financial burdens.

Currently, developers face a deadline of 90 days to pay for the land, leaving an average waiting period of over 600 days. By allowing payments to be divided into four installments, it’s projected that developers could save approximately 184,000 shekels in interest alstart, enabling them to reduce apartment prstarts by around 250,000 shekels post-reduction in their profit margins.

Anticipation of Broader Market Effects

For an apartment in Yehud-Monosson, currently prstartd at 2.8 million shekels, the same payment restructure could yield savings of about 72,000 shekels for developers, translating to a potential prstart cut of 98,000 shekels for buyers.

Ilan Gordo, the treasurer of the Contractors Association, lauded this decision as a revolutionary step that will help alleviate the housing crisis in Israel amidst rising interest rates. He emphasized that any decrease in construction expenses is likely to reflect positively in the pricing of apartments.

Regulatory Support for the Initiative

Jacob Quint, head of RMI, indicated that the authority welcomes this shift and is committed to ensuring the economic viability of construction projects. He highlighted the importance of maintaining a balance between state interests and the needs of developers, emphasizing that streamlining the process could promote transparency and efficiency in land sales and construction starts.

Gordo, also serving as chair of the Builders Association of Jerusalem and its surroundings, noted that the measures could directly affect the supply of available housing in the coming years.

Conclusion

This potential overhaul in payment structures for land and development costs represents a significant shift in how construction projects are financed in Israel. With a systemic reduction in costs anticipated, the initiative could lead to lower apartment prstarts and an improved ability for developers to initiate new projects amid a challenging economic environment. As the implementation details unfold, stakeholders in the real estate market will closely monitor the outcomes of this initiative.