The Israel Land Authority recently announced an upward revision of a single clause in "target price" tenders, which will increase the prices of apartments participating in reduced-price apartment auctions in central cities. This upward revision of the linkage coefficient, which is used to calculate the discount amount in reduced-price 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 an apartment pool for the "Reduced-price Apartment" program draws. The prices of apartments offered there benefit from a 20% discount compared to free market prices. The mechanism for determining the discount amount also includes calculating an indexation coefficient that expresses the evolution of price indices in the economy. The upward revision of this linkage coefficient will result in a significant increase in the price of apartments that will be drawn in demand areas. The more expensive the apartments, the greater the effect of the linkage coefficient increase. The main affected areas will therefore be those where prices are of course significantly higher. It should be noted that free market apartment prices in "target price" auctions are currently determined based on average prices at 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 consider the 494 housing units that will be offered in a target price auction in the coming months, the effect of the linkage coefficient increase will be significant.
In summary, the increase in the linkage coefficient in the Israel Land Authority's "target price" tenders is expected to result in a significant increase in reduced-price apartment prices in demand areas, mainly in the center of the country. Potential buyers can expect to pay hundreds of thousands of shekels more for a reduced-price apartment than before. This price increase will impact potential buyers' ability to access property ownership in demand areas where prices are already high.
