Do you own more than three apartments? Prepare to pay a new tax which could reach almost NIS 20,000 per year. This time, the Economic Arrangements Law, the government and Ministry of Finance's way of fast-tracking laws, includes a bill to impose a new tax on owners of apartments for investment. This is a further step in a series of efforts by Minister of Finance Moshe Kahlon to discourage investors from the real estate market but, according to opponents, it may lead to a rent hike and even decrease the supply of apartments for rent.
<p>As part of the Economic Arrangements Law, it is proposed that, starting in January 2017, in less than six months, a new tax will come into effect, requiring owners of three or more apartments to pay one percent of the apartment's value, to a limit of NIS 1,500 per month or NIS 18,000 per year. The apartment's value will be determined by the Ministry of Justice Land Appraisal Department according to the apartment's location. An apartment in an outlying area will therefore not be taxed the same way as an apartment in central Israel.
<p>How many people in Israel own three or more homes? According to Ministry of Finance data, there are about 50,000 in this category, owning 180,000 homes, a considerable number.
<p>The Ministry of Finance explains that this is another way of pushing investors out of the market, thereby increasing the supply of apartments for sale on the free market. However, sources in the real estate market believe that this tax, if approved, will lead to a rise in rents. If an apartment owner is suddenly forced to pay additional NIS 1,500 per month, opponents of bill say, the easiest thing to do will be to force renters to cover this added expense.
<p>At the same time, it might be wrong to maintain the current situation, in which owners of multiple homes rent them out and pay low taxes. So what is the correct solution? And what are the chances that this bill will be approved by the Knesset? A tough question. What is certain is that the more opponents this bill makes, the more pressure decision makers will be subject to, pressure that might bear fruit.
<p>This bill also requires the Land Appraisal Department, which will determine the price per square meter according to areas, to conduct staff work. Does this sound familiar? It should be. This is the same mission it received two years ago from the then Minister of Finance Yair Lapid, when he tried to promote his zero VAT plan. The data collected then were shelved, along with the entire plan. If the Land Appraisal Department has to start this from scratch, the question arises whether the tables will be ready by January 2017.
<p>Another question which casts a shadow over this law concerns its effect on the supply of apartments for rent. While 50,000 people selling at least one apartment will certainly make a significant addition to the market of apartments for sale, it will be a severe blow to the supply of apartments for rent.
<p>The bottom line regarding this law, whether it is approved or not, is that if the Minister of Finance intends to go all the way with investors, he must accelerate efforts on housing for rent. The few tenders that have already been closed, providing a total of 1,200 apartments for rent, are not enough. If you push investors out of market, even if this is the right move to cool the market, you should also take care of the renters who, at present, will be left with no solution.
<p><em>Published by Globes [online], Israel business news - <a href=" http://www.globes-online.com ">www.globes-online.com</a> - on August 9, 2016</em></p> <p><em>© Copyright of Globes Publisher Itonut (1983) Ltd. 2016</em></p>