The real estate sector in Israel continues to occupy the news and the Israeli Parliament: it was reported yesterday that an agreement was reached between the Minister of Finance –Yuval Steinitz and Minister of Housing – Ariel Atias; in it, young couples, who are planning to purchase their first apartment in the Periphery, will be eligible for a grant of 100 thousand NIS. According to the Ministry of Housing, this plan is estimated at 400 million NIS a year, assuming that 4,000 couples will cash in on this grant.
There are certain limitations on this grant and people, who wish to use it, will have to purchase an apartment in a building in the periphery.
By reaching this agreement, Ariel Atias agreed to pull out his law proposal to subsidize mortgages.
This grant is supposed to help young people to purchase apartment and also to further develop Israeli periphery.
The housing prices rose during 2010 by over 15% on a national level; the housing prices in the Periphery (i.e. North and South parts of Israel) also inclined sharply in 2010.
In reality if people will use this grant, it is likely that this grant will only pressure real estate prices to further rise in Israel and in particular in the Periphery.
The efforts of Bank of Israel to ward off Banks from giving mortgages to people for purchasing housing, assuming the commercial banks are taking high risks in the real estate sector, seem to be in vain; the recent proposal will only further encourage banks to grant mortgages, now that those couples will be given a 100 thousand grant; this grant is low enough that people will still need to bring money from home, so the moral hazard is low, and high enough to increase the odds of people receiving mortgages.
It will be interesting to see if Bank of Israel will follow up on this grant plan.
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