Home sales fell 21% in June 2013, when the VAT hike came into effect, from May, the Ministry of Finance reports. Home sales in May posted a ten-year high, as people closed deals ahead of the VAT hike.
"The buyers who led the jump in home purchases in May, investors and people moving upmarket, were the same buyers who led the drop in purchases in June. Home purchases by these two groups both fell by 30%," said the Ministry of Finance. "The proportion of deals by investors fell by 2.5 percentage points. It should be noted that the plunge in purchases by investors began with the interest rate cuts by the Bank of Israel."
The Ministry of Finance's home sales figures in June are in line with the Bank of Israel's report of a reduction in the number of new mortgages in that month. However, yesterday, the Bank of Israel reported NIS 5 billion in new mortgages in July, a 19% jump over June, which means that home sales also rose.
"It can be assumed that publication of the proposal to cancel the capital gains exemption for investors in the Economic Arrangements bill for 2013-14 was one of the factors which contributed to the sharp drop in purchases by investors," says the Ministry of Finance. "Although sales by investors fell sharply in June, this came after a 70% increase over the three preceding months. In addition, since the capital gains tax liability will apply from January 2014, and will be calculated linearly (on the basis of the period the property was held), cancellation of the exemption is more important for new investors than for investors who held a property for a long time. Nonetheless, it is possible that sales by investors will increase in the coming period, especially by investors who have held properties for a short time."
Young couples are still staying away from the real estate market; home purchases by young couples fell by 7% in June, compared with May. "The drop in purchases by young couples was nationwide, except in Jerusalem, which was unchanged. It can be assumed that this stability partly was due to the 14% increase in purchases in May, and the decision to provide the Jerusalem grant to buyers of first homes in the city," says the Ministry of Finance. "It should be noted that purchases in Jerusalem by investors and people moving upmarket fell by 30% and 40%, respectively."
Published by Globes [online], Israel business news - www.globes-online.com - on August 13, 2013
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