Interior Minister Approves Doubling Property Taxes on Vacant Israeli Apartments

The tax hike, effective January 2014, will apply to flats that are empty nine months a year.

Interior Minister Gideon Sa’ar signed new regulations that will double property tax on dwellings that are unoccupied for at least nine months a year, he informed the cabinet on Sunday.

The new regulations, due to go into effect in 2014, still need the final approval of Finance Minister Yair Lapid and the Knesset Finance Committee. They were enacted in accordance with the recommendations made by the Trajtenberg committee, which were approved by the government over a year ago. The committee, appointed in the wake of the 2011 social justice protests to propose solutions to Israel's socioeconomic problems, found that over 46,000 apartments in Israel are empty.

Most vacant dwellings are owned by foreign residents or by Israelis who use them as vacation homes. The committee recommended that taxes on these dwellings be doubled, in an effort to encourage their rental, in order to increase the supply of housing.

In a meeting held in March 2012, the cabinet approved the recommendation to “broaden the supply of apartments in existing buildings through changes in property tax regulations.” It took a further 14 months to formulate the regulations and bring them to the interior minister for signing. "The Ministry examined different ways of implementing the government’s decision to raise taxes on ‘phantom’ apartments, looking into all legal aspects of this decision," said the Interior Ministry in response to a query by TheMarker about the long interval between the decision and its implementation.

However, a knowledgeable source noted that during the previous government’s term, the new regulations were delayed due to stiff opposition within the ministry; and that only with the appointment of a new minister has there been progress in implementing the tax hike.

According to the new regulations, the local authorities will bear responsibility for supervising the duration of an apartment's vacancy, and they will be the beneficiaries of any added taxes. Supervision will be enacted through a monitoring of water meters, information which is gathered in any case by water providers, and will not require any further action by the local authorities. Property taxes will be doubled in properties in which no activity is monitored during nine months of any calendar year. The new tax is slated to go into effect on January 1, 2014, so that local authorities will be able to collect the taxes retroactively at the end of that year.

The city with the largest number of phantom apartments is Jerusalem, with an estimated 10,000 empty residential units. The municipality is expected to collect an extra NIS 15 million annually as a result of the new regulations. In Tel Aviv, which also has a substantial number of empty apartments, the city is expected to collect an extra NIS 2 million. At this stage, the new regulations are considered temporary injunctions for two years, during which their impact on the housing market will be evaluated.

The approval of these new regulations was welcomed by Jerusalem’s mayor, who has been advocating for such steps for several years. “This decision is an important tool which will provide thousands of apartments for young families in Jerusalem. Young people are Jerusalem’s oxygen, and we are constantly striving to attract young people and families to the city”, said Jerusalem Mayor Nir Barkat.  “Adding thousands of phantom apartments to the market will dramatically increase the supply of available rental units for young people, which will reduce rental prices in the city."

Erez Cohen, former chairman of the Real Estate Appraisers Association in Israe,l referred to Sa’ar’s decision as a step in the right direction. “There is an unmet high demand, with more than 40,000 empty apartments, and if some of them become available for rental following the implementation of these new regulations, this will stabilize rental market prices," he said. “Nevertheless, it should be noted that this decision will not impact housing prices. Many of these apartments are upscale properties. Thus, the new regulations will only affect a small segment of apartments that were purchased for investment purposes."

Not everyone applauds the new regulations. “The regulations imposing a doubling of taxes on vacant apartments is an infringement on basic ownership rights," said attorney Israel Aziel, head of the real estate division at Lipa Meir & Co Law Offices, who represents apartment owners in Israel and overseas, as well as real estate developers. "A property owner who, for whatever reason, decides not to make use of his private property, should not be penalized for his decision. This contradicts the basic concepts of ownership rights which allow any owner to do as he pleases with his property.

"This attempt to increase the housing supply through an increase in property taxes is fraught with problems and may miss its mark," added Aziel. "It is unclear whether negative incentives will induce usage of the property. Positive inducements should be used to solve the problem, including financial incentives."

Tomer Appelbaum