Report: Real Estate Investors Increasingly Likely to Sell at Loss

Hadar Horesh
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An apartment for rent in Tel Aviv, May 3, 2020
An apartment for rent in Tel Aviv, May 3, 2020Credit: Ofer Vaknin
Hadar Horesh

Investors’ capital gains from real estate investments are declining, according to a review published by the Economy Ministry’s Chief Economist Shira Greenberg on Wednesday.

The review examines sales from the first quarter, which ended in March, and thus does not include the impact of the coronavirus pandemic, which brought fewer home sales and price erosion.

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Over the past few years, Israel’s Finance Ministry tried to reduce real estate investments by increasing taxes on owners of multiple homes. This policy reduced the number of homes owned by investors by 25,000.

The study found an increase in the number of homes sold at a real capital loss as of the first quarter, after the figure stabilized in the second quarter of 2019. Capital gains losses increased notably in outlying areas, but were much less common in Tel Aviv.

Greenberg’s review is based on capital gains tax reports. Real estate investors pay a 25% capital gains tax when they sell an apartment.

The study does not reflect the full picture as to how profitable real estate investments are, as it does not include rental income, but rather just the difference between purchase and sale prices.

In the first quarter of the year investors sold some 5,200 apartments, 4% less than in the first quarter of 2019.

Initial data from the second quarter of 2020 show a significant increase in investment apartments sold at a loss. Some 10%-15% of investment apartments were sold at a loss in outlying areas such as Hadera, Tiberias and Be’er Sheva.

The figure was only 2.4% in Tel Aviv, a figure similar to last year’s statistic.

Fully half of investors who owned an apartment for up to three years sold for a capital gains loss, or at least made no capital gains profit.

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