The Israeli Land Authority recently announced an upward revision of a unique clause in “target price” tenders, which will increase the prices of apartments participating in discounted apartment auctions in central cities. This upward revision of the linkage coefficient, which is used to calculate the amount of discount in discounted apartment auctions, is expected to make participating apartments more expensive by tens to hundreds of thousands of shekels.
“Target price” tenders are tenders that serve as a pool of apartments for the “Reduced Price Apartment” program draws. The prices of the apartments offered there benefit from a 20% discount compared to the free market price. The mechanism for determining the amount of the discount also includes calculating an indexing coefficient that expresses the evolution of price indices in the economy. The upward revision of this linkage coefficient will lead to a significant increase in the price of apartments that will be drawn in areas of demand. The more expensive the apartments, the more the effect of the increase in the linkage coefficient increases. The main areas affected will therefore be those where prices are, of course, significantly higher. It should be noted that the prices of apartments on the free market in “target price” tenders are currently determined based on average prices as of the end of 2020.
For example, in the city of Rehovot, the average price of an apartment in the last quarter of 2020 was 1.7 million shekels. If we take into account the 494 housing units that will be offered in a target price auction in the coming months, the effect of the increase in the linkage coefficient will be significant.
The city of Rehovot is expected to see an increase of nearly 200,000 shekels per apartment as a result of the increase in the linkage coefficient. This means that auction winners could pay hundreds of thousands of shekels more for a discounted apartment than they expected before. This increase in the prices of discounted apartments will have a significant impact on potential buyers, especially those looking to buy a home in areas of demand where prices are already high.
In summary, the increase in the linkage coefficient in the Israeli Land Authority’s “target price” tenders is expected to lead to a significant increase in the prices of discounted apartments in areas of demand, mainly in the center of the country. Potential buyers can expect to pay hundreds of thousands of shekels more for a discounted apartment than before. This increase in prices will have an impact on potential buyers’ ability to access property in areas of demand where prices are already high.
