Rent rise in Israel slows drastically

new homes
new homes

Housing prices are still rising, albeit more slowly, the Central Bureau of Statistics reports.

Just before the tax on owners of three housing units goes into effect, figures show that increase in rent in 2016 was the lowest since the 2008 financial crisis.

Figures for the 2016 Consumer Price Index (CPI) show that the housing item, based on rent, rose 1.4% over the past 12 months, Meitav Dash chief economist Alex Zabezhinsky wrote.

The housing item in the CPI refers to renewed leases, and as such measures the overall price of leases. Purchase tax for purchases of housing for investment was raised in mid-2015, and one of the effects of this measure was a change in what investors bought. After the purchase tax hike, more housing for investment was purchased in outlying areas more distant from central Israel. Housing there is cheaper, and the rents charged for it are lower.

At the same time, some assert that the moderate rise in rent contradicts the claims that the tax on a third housing unit will increase rent. In this case, it is premature to analyze the effect of the new tax, because it is still too soon after debate about the law began, and certainly after the Knesset passed the law.

"In my opinion, some market saturation is evident here, mainly in outlying areas, despite the continued increase in the housing prices and anticipation of the tax on a third housing unit (which is likely to be rolled over onto tenants, A.B.)," Zabezhinsky wrote.

Housing prices were up 8.1% in the 12 months ending on November 30, 2016, slightly less than the 8.6% rise in the 12 months ending on October 31, 2016. Psagot Investment House Ltd. chief economist Ori Greenfeld believes that the increase in housing prices is about to slow down substantially, but adds, "Before opening the champagne, consider that:

1. The increase is slowing, but prices are still rising.

2. This slowing is not likely to be rolled over onto rents; it results from two factors expected to exert upward pressure on rent: the rise in mortgage interest rates is increasing financing costs for investors and boosting demand for rental housing, and the tax on a third housing unit will at best decrease the supply of rental apartments, and be rolled over onto the tenants at worst."

Demand for real estate and vehicles cooling off

Looking ahead to 2017, Zabezhinsky predicts that state tax revenues from real estate and vehicles will fall by NIS 4-8 billion as a result of a cooling off of demand in these two sectors. His analysis shows that real estate and vehicles contributed NIS 10 billion to the state's surplus revenue in 2012-2016. Tax revenues from vehicles and real estate grew from NIS 21 billion in 2012 to NIS 37 billion in 2016, a 76% increase, while the increase in overall tax revenues during this period was 30%.

Zabezhinsky hopes for good results from the Minister of Finance Moshe Kahlon's measures aimed at encouraging high-tech companies to register their intellectual property in Israel. As reported in "Globes," Kahlon hinted in a speech last Thursday that details of investments in Israel by high-tech companies amounting to the billions of dollars would be published in the coming days. The recent Economic Arrangements Law cut taxes on these companies to 6% for large-scale companies and 12% for other high-tech companies. The tax on dividends for all companies was cut to 4%.

"As a high-tech power, Israel constitutes an attractive alternative for global companies having to choose where to register their intellectual property in the coming year," Zabezhinsky writes. "This volume of investments is likely to generate NIS 4-8 billion in tax revenues."

Published by Globes [online], Israel Business News - - on January 17, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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