Israel's Finance Ministry Proposes New Tax for Developers Who Delay Construction

The 'delayed construction levy' is meant to add several thousand new homes in the short term and to push housing prices down.

Builders would face a new tax if they delay construction due to economic considerations, as part of a Finance Ministry plan to increase the housing supply and thus push down home prices.

The “delayed construction levy” is supposed to add several thousand new homes to Israel’s market within the short term. It is a modified version of the property tax law that was canceled in 2001.

From the moment the law takes effect, builders with land approved for construction − meaning building plans have been approved for those plots − would have three years to sell all the homes slated for that land. If they fail to do so, they would face a levy. Developers unable to build within that time frame for financial reasons would be able to sell the plot to another party with the means to build.

Unlike the former property tax law, the current bill calls for taxing businesses, not individual property owners. It also calls for taxing land only if it is slated for at least 200 homes.

“This step is supposed to solve the problem caused by the fact that after the Israel Lands Administration sells a plot to a developer, the state has nearly no tools to ensure that sale will result in homes for sale,” said a senior source involved in drafting the bill. Many contractors choose to sit on plots, believing they can get more money for homes built there in the future.

While conducting background research for the bill, the treasury found that contractors are sitting on land that could be used to build 12,000 homes in high-demand areas in the center of the country.

If the bill passes, at least some of these 12,000 homes will actually be built in the short term, treasury sources predict. The longer contractors delay construction past the three-year mark, the higher the tax would be, under the draft bill. After three years, they will be charged 0.5% of the land’s value. The draft sets the maximum levy at 3%.

The bill also allows contractors to petition in cases in which they cannot build for external reasons.

Daniel Bar-On