New home sales shot up by 32 percent in May compared with the same month last year, according to figures released on Sunday by the Central Bureau of Statistics.
In total 2,340 units were sold in May as buyers rushed to close deals before value-added tax rose.
The figure compared with just 1,770 home transactions made in May 2012, when the market was depressed by the social protests of the previous summer.
The data further showed that in the first five months of the year new home sales were up 24.4 percent from the same period in 2012, reaching a total of 10,240 units.
VAT rose by one percentage point to 18 percentage in June as part of a package of tax hikes aimed at closing the government's massive budget deficit. The government has also proposed to impose a tax on people trading up to new and bigger homes, an initiative that has yet to receive Knesset approval.
"Concerns about direct and indirect taxes on housing led the number of enquiries by home buyers to grow by hundreds of percent," said Shimon Shai, deputy CEO of marketing at the property developer Dona. "Our sales offices in certain areas stayed open until the late in the evening, but because of the time it takes for mortgage banks to approve applications, many of these buyers didn't manage to buy a home before the VAT increased."
The government has been struggling to rein in the housing demand and rising prices. But low interest rates and threats of new taxes, as well as a decline in supply as reflected in the number of housing starts and building permits have only acted to increase demand.
Signaling that the housing shortage has yet to be solved, the CBS said the number of unsold homes in inventory has dropped 5.4 percent compared to a year ago, reaching 20,990 units at the end of May. However, the inventory increased by 74 percent in the north and 28 percent in the Haifa and Jerusalem areas.
In the center and in the south, the inventory shrunk by 22 percent and in the Tel Aviv area by 8 percent, the CBS said.
Shai said Dona sold 42 units for a combined NIS 53 million at various housing projects around the country, a 24 percent increase from the previous year. "I think we'll see continued demand in the next few months after the banks approve the mortgage applications," he said.
Not all parts of Israel saw a surge of new home sales in May. In the Tel Aviv area, the number of transactions soared 77 percent and in Haifa by 73 percent. In the northern district, the increase was 53 percent, followed by a 30 percent increase in the Jerusalem area. But in the central district the increase was just 8% and in the south the number of sales actually dropped by 19 percent.