Anyone thinking about raising purchase tax or other real estate taxes, such as taxing all rents, should pay attention to the Ministry of Finance real estate survey for February, published yesterday. The survey results clearly show how investors are evading tens of thousands of shekels in taxes on each apartment by pretending that they are purchasing their (new) first apartment.
A survey results of purchasers of new first apartments in the Beersheva area in February 2015 shows a steep rise of over 40% in the number of new first apartments purchased, compared with a substantial drop in the central region and the Shfela (inland plain).
The survey states that the variance in the prices of the new apartments purchased in the Beersheva area in February was very low (from NIS 838,000 to NIS 953,000, amounting to only 13%). According to the survey, most of the apartments were purchased in Kiryat Gat (apparently in the new Karmei Gat project built by Gindi Holdings, which recently won an Israel Land Authority (ILA) tender for the purchase of land, and is marketing 1,000 apartments). "Ostensibly, given such a distribution of apartment prices in a very small area, a low variance in per household income of the purchasers of these apartments should also have been expected," the survey states. The variance in income, however, was actually very high, ranging from NIS 3,000 per month for the lowest 25% to an average income of NIS 26,000 per month in the highest 25%. The Ministry of Finance states, "These findings hint at a high proportion of people who ostensibly purchased an apartment as their living quarters, but in all probability intend to rent it out, not live in it" (in other words, investors).
In view of these findings, the Ministry of Finance cites large gaps in taxation between purchasers of an "additional apartment" and purchasers of a "their only apartment" (including those purchasing an apartment for the first time). For example, the average tax paid by purchasers of the apartments mentioned above, had they been classed as purchasers of an "additional apartment," was NIS 45,000. As purchasers of their only apartment, they are exempt from this tax.
The Ministry of Finance does not say so, but there are two ways for someone whose average income is only NIS 3,000 to buy an apartment for almost NIS 1 million. One is parents who buy an apartment for their low-income children (again, actually an apartment for investment dressed up as a first apartment), or the use by the purchaser of unreported money. The other consists of those in the top 25% income percentile who can afford to rent an apartment in the central region, while buying their first apartment in Kiryat Gat.
Other figures appearing in the Ministry of Finance survey show that 10,500 apartments were purchased in February, down 3%, continuing a similar decline in January, following a sharp increase in the number of deals in the last two months of 2014, when people stopped waiting for approval of the 0% VAT bill.
The decrease in February was steepest among investors, 16%, after jumping 35% in January. The proportion of deals involving investors thereby fell to 26%, 4% less than the exceptional level in January (this figure may be low because of many investors pretending to buy their first apartment). The Netanya and Jerusalem areas, which led in the increase in the proportion of investors in January, reverted to their average level in 2014 by dropping 10% in February, compared with the preceding month. The Tel Aviv and Beersheva areas are the only ones that kept a high proportion of investors in February.
Published by Globes [online], Israel business news - www.globes-online.com - on April 14, 2015
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