Cabinet Approves Higher Taxes on Investment Homes

Finance Minister Kahlon hopes move will curb demand in housing market

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Moshe Kahlon at Tel Aviv University, September 18, 2014.
Moshe Kahlon at Tel Aviv University, September 18, 2014.Credit: Ofer Vaknin

The purchase tax on houses bought by property investors will rise to as much as 10% under a plan approved by the cabinet on Sunday aimed at curbing demand in the housing market and lowering prices.

The proposal is one of package of measures Finance Minister Moshe Kahlon is planning to cool the housing market. The tax on homes worth up to 4.8 million shekels ($1.25 million) will be taxed at a single rate of 8%, up from 5% to 7% today, while those worth more will be taxed at 10%, up from a range now of 8% to 10%.

The plan has some other hurdles before it becomes law, including approval by the cabinet’s legislative committee, which is expected to vote on the measure Monday, and then by the Knesset. But sources said that barring unexpected developments, the new tax rates should be in effect July 1.

Treasury officials are hoping that the higher tax rates will discourage people from buying properties as an investment, squeezing out the first-time home buyers who are their main competition for properties. The reduced demand, in turn, should ease prices.

But that wasn’t the view expressed in the real estate and construction sector on Sunday. “Raising taxes on investment properties won’t reduce demand for homes,” said Rina Degani, CEO of the market research firm Geocartography. “Investors mainly buy relatively low-priced homes of less than 1.5 million shekels.”

Meanwhile, in the real estate industry, sources said that reports about higher taxes that have been circulating since the start of May had already caused a rush of investors into the market. That will only grow more severe now that the plan has won cabinet backing, they said.

“”I went to look at six houses for investment today. I’m ready to buy almost all of them at a reasonable price, said property assessor Haim Mesilaty. “Every investor is doing the same. If in another two weeks the cost of a purchase is going to rise 3% – that means that on a typical investment property he will have to pay 25,000 or 30,000 shekels more. That’s a lot of money.”

Ronny Cohen, CEO of Eldar Marketing, which acts as sales agent for score of projects around the country, said purchases by investors had risen 25% last month, compared with the same time last year.

“I’m guessing that in the next two weeks we’ll see an even sharper rise in activity. I don’t think it’s bringing buyers who had never thought about investing in property to close a deal, but it is causing those who were thinking about it to get off the fence,” he said.

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