“We are examining, with the Ministry of Finance, a further rise in purchase tax for investment properties "to cool the housing market,” said Prime Minister's Office director general Harel Locker in the latest edition of "Banking," the Association of Banks in Israel’s magazine, to be published in the coming few days. Raising the purchase tax on investment properties would decrease demand for apartments, and reduce home prices.
According to Locker, low interest rates continue to attract many investors, but people who buy apartments to live in don’t feel the rise in home prices. “Because of the low interest rates, buyers add a little capital, spread mortgage payments over a longer period of time, and the end result is that monthly mortgage payments, relative to salary, do not rise dramatically.”
Ministry of Finance sources told “Globes” that the goal is to eliminate properties for investment. This is why the possibility of requiring buyers of investment properties to declare the sources of their income is also being considered - an extreme measure, which has been taken in countries such as Venezuela and Argentina.
Only last week, Governor of the Bank of Israel Dr. Karnit Flug told Channel 2 that she supports this initiative: “There is room to raise taxes for investors. One option is to raise purchase tax.”
This was also proposed in the last International Monetary Fund (IMF) report. "If house prices continue to rise,” the report said, “other macro-prudential measures should be considered. At the same time, consideration should also be given to raising real estate taxation, including raising temporarily the purchase tax for apartments that are not the buyer's main home.”
The purchase tax is already higher on investment properties than on first homes. Purchase tax on apartments up to NIS 1,123,910 is 5%; tax on the portion between NIS 1,123,910 and NIS 3,371,710 is 6%; between NIS 3,371,710 and NIS 4,642,750 it is 7%; between NIS 4,642,750 and NIS 15,475,835 it is 8%, and above NIS 15,475,835 is taxed at 10%.
Locker said in the interview that the government is advancing approvals for the construction of 80,000 housing units, including 55,000 in high-demand areas, and that it intends to continue this policy in 2015 as well. “At the end of the day, the market is based on expectations, and these steps are beginning to trickle through the market. We must remember that, until 2009, there was a policy of lack of planning for central Israel, it was a government decision, and we have reversed that decision completely.”
These matters have gained validity, as Prime Minister Benjamin Netanyahu was not a part of, and did not agree to, Minister of Finance Yair Lapid’s initiative to waive VAT for first-time homebuyers, and even announced yesterday that he is preparing an alternate plan with additional measures.
Published by Globes [online], Israel business news - www.globes-online.com - on March 20, 2014
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