Gov't seen hiking tax on investment home buyers

new homes

As home prices surge, purchase tax on second homes will probably be returned to the level imposed by Moshe Kahlon.

At the beginning of next week, Minister of Housing and Construction Ze'ev Elkin, Minister of Finance Avigdor Liberman, and Minister of the Interior Ayelet Shaked, are expected to announce a rise in purchase tax on investment homes. The rate will probably be the same as was imposed by Moshe Kahlon as finance minister, which was changed by his successor Israel Katz. Thus instead of a rate starting at 5% of the price of the home, for an investment buyer the tax rate will start at 8%. The measure is expected to be passed through expedited legislation, in order to prevent a sudden burst of investment buying to beat the new rate, leading to a sharp rise in prices. In Kahlon's time, the measure was introduced through a five-year temporary ordinance.

The move should not come as a great surprise. Two months ago, the chief economist at the Ministry of Finance said explicitly that it was investment buyers who were pushing home prices upwards, causing first time home buyers to pay more. Critics of the move argue, with a degree of justice, that the people who will be harmed by the measure will be those who seek to rent apartments, since the supply of apartments for rent will be depressed.

The numbers show that investment buyers don't need official government announcements. In the past few months, the number of investors buying homes has risen sharply. Bank of Israel figures show that August saw a ten-year peak in the number of investment buyers who took mortgages to buy homes.

Further measures planned

Raising the rate of purchase tax is one measure out of many that the ministers are expected to present to the government to deal with the severe housing crisis. So far this year, the average price of an apartment has risen by 9.2%, and the expectation is that the rise will reach double figures by the end of the year. Among the additional moves on the agenda are measures to curtail short-term rentals (such as through Airbnb): anyone who advertises an apartment for more than 100 overnight stays in a year will pay a tourism tax, i.e., double tax on the rental income. The idea is to strengthen Israel's hotel industry, and to free up apartments in central Israel and in Jerusalem for permanent housing instead of them being used by tourists.

Another measure under consideration is to provide incentives for urban renewal in outlying areas. The Ministry of Housing and Construction seeks to prioritize such projects in northern Israel because of the age of the buildings and their vulnerability to missile fire. Contractors will be given cash incentives for renewal projects by the Ministry of Defense, the Ministry of Finance, and the neighborhood rehabilitation program in the Ministry of Housing and Construction. Another possibility is to give developers who undertake urban renewal projects in the north additional land in the center of the country.

Published by Globes, Israel business news - en.globes.co.il - on October 28, 2021.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.

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