Finance Ministry officials are weighing a steep new tax on Israelis who own three or more residential properties, a move aimed at cooling off the overheated housing market as well as providing the government with revenues needed to close a budget gap next year.
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The plan would impose a flat tax of 1,000 shekels ($258) a month on every property, starting from next year if it is included in the 2017-18 budget, in a bid to discourage investors from buying properties and crowding out people looking for a home to live in.
Officials estimated the tax could bring in as much as 1 billion shekels annually, which would help close a budget gap that could reach as much as 15 billion shekels next year. But opponents of the plan warn that the last time the government raised taxes on housing investors, revenues actually declined.
Moreover, they are concerned the plan might have a perverse effect on the housing market, where Finance Minister Moshe Kahlon has given top priority to lowering prices. But officials said that in Israel’s red-hot housing market, landlords would easily be able to pass the cost of the higher tax on to tenants.
However, there is some evidence that Kahlon’s efforts to cool the market by increasing the supply of housing is having an effect. The Central Bureau of Statistics said Wednesday that the inventory of unsold new homes rose in May to about 28,000, its highest level since 2000.
Home sales, however, remained at very high levels, with the statistics bureau reporting that 2,888 transactions occurred in the month, one of the highest levels of the year and near the June 2015 record of 3,073. After rising steadily from the middle of 2015 to the June 2015 peak, the level of home sales has fluctuated but stopped rising.
The last hike in property taxes on investors, which Kahlon imposed a year ago, actually cut tax collection by 200 million shekels even though the rate rose from 5% to between 8% and 10%. But one reason was that home buying by investors dropped sharply, which was a goal of the program.
In any case, treasury critics said a flat tax on three or more homes would be absurd because a landlord with a portfolio of run-down apartments in Be’er Sheva would be paying the same tax as someone with a collection of luxury properties in Tel Aviv.
The treasury estimates there are at least 60,000 Israelis with three or more homes. Many right now pay no tax on their income from them because it is tax-exempt.