June 7, 2021

Treasury mulls purchase tax hike on Tel Aviv investment homes

Globes, Arik Mirovsky, 07.06.2021

One of the hot topics that the next government will have to deal with will be the renewed rise in home prices. Three months ago, the Ministry of Finance, the Israel Land Authority and the Ministry of Housing and Construction forecast that in the coming years home prices would rise at an annual rate of 4%, but it is now already clear that the rise in 2021 will be double that, if not more.

If this is what in fact happens, the Ministry of Finance and the Ministry of Housing and Construction plan to recommend to the next government that purchase tax should be raised for buyers of investment homes, but only in in the Tel Aviv area.

Both ministries are concerned at the lack of a government housing policy and at the decline in all the indicators that are meant to stabilize the housing market. In the first quarter of this year, some 34,000 housing units were sold, the second highest quarterly figure ever.

Two segments stand out in the housing market. One is young couples, who bought a record number of homes in the first quarter, amounting to over 16,000. The other is real estate investors, who stormed the market as soon as Minister of Finance Israel Katz cut the purchase tax rate that had been imposed on them by his predecessor, Moshe Kahlon. 37% of housing transactions in the Tel Aviv area in the first quarter of this year were purchases by investment buyers. The proportion nationwide was 20%.

Officials at the Ministry of Finance and the Ministry of Housing and Construction now believe that the only way to cool the market will be a partial rise in purchase tax, applying to investors buying in the Tel Aviv area. A version of this proposal was raised in the past by the Ministry of Housing and Construction but was not accepted.

The idea of implementing the proposal still needs to be examined. First of all, there is no clear evidence that it is investors who are raising home prices. The home price index for the Tel Aviv area indicates a 3.7% rise over the past year, while in the country as a whole prices rose by 4.5%. It would appear that it is actually demand in other segments of the market that is driving prices upwards.

Apart from that, the locations where the higher rate of purchase tax will apply will have to be defined: In Tel Aviv only? In Tel Aviv and neighboring cities? So far, there is no answer to these questions.

Published by Globes, Israel business news - en.globes.co.il - on June 7, 2021