Kahlon Seeks to Impose Higher Israeli House-purchase Tax by Tuesday

Move aims to cut short surge in property buying by investors.

Zvi Zrahiya
Zvi Zrahiya
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Finance Minister Moshe Kahlon, May 18, 2015.
Finance Minister Moshe Kahlon, May 18, 2015.Credit: Gil Cohen-Magen
Zvi Zrahiya
Zvi Zrahiya

Hoping to cut short a surge in property buying, the government is angling to have the purchase-tax hike for homes bought by investors go into effect Tuesday, a week earlier than originally planned.

Roy Folkman, Knesset faction leader for Finance Minister Moshe Kahlon’s Kulanu party, on Monday asked the Knesset Finance Committee to ready the law authorizing the increases for its second and third readings tonight, putting the higher rate into effect Tuesday, instead of July 1 as originally slated.

“There’s a move like this underway. Finance Minister Kahlon says the market is afire and every day that passes, more investors are entering the market and causing damage,” committee chairman Moshe Gafni (United Torah Judaism) said Monday, confirming the move.

The treasury had hoped the threat of a tax hike would be enough to deter investors even before it went into effect, but this week it quickly discovered it was having the opposite effect.

“We’ve arranged to sign 25 sales contracts just today. In the two days we have left, we’ll be working until midnight to close deals,” said Nir Shmuel, CEO of Shnir Real Estate Marketing. “This is happening in all three of our projects. We have one where we began selling seven days ago and we’ve already sold 150 units, a third of them to investors.”

Under the law, which Kahlon initiated in a bid to deter property investors from crowding out people buying homes to live in, the purchase tax on homes costing up to 4.64 million shekels ($1.2 million) will rise to 8% – from the current 5% to 7% – while those paying in excess of that will be taxed at a 10% rate (up from 8%). The new rates are to remain in effect until the end of 2020.

The law is part of a package of measures Kahlon has been working on in the five weeks since he took over the Finance Ministry. His newly formed Kulanu party captured 10 Knesset seats with promises of reducing the cost of living – housing prices in particular.

Treasury director general Shai Babad said the government had needed to act quickly to stem the housing crisis. The slow progress that former Finance Minister Yair Lapid made last year in his efforts to pass a law exempting many first-time home buyers from value-added tax created huge volatility in the market, as buyers held off from buying until the law was passed. They then stormed the market when it was killed off in the Knesset.

“There’s a limited stock of housing, and we don’t want every house to be snapped up by investors over the last nine days of June, leaving nothing for young couples,” said Babad, referring to first-time home buyers, the target constituency for Kahlon’s measure.

He termed the higher rates as a “painful” measure needed to handle a crisis and promised that if the situation changed, officials would consider lowering the rates again. “Without a doubt, Kahlon wouldn’t have wanted a purchase-tax rise to be the first measure he presents to the Knesset,” Babad added.

The tax measure, however, faces a host of political and legal hurdles. Opposition lawmakers, led by Erel Margalit and Miki Rosenthal (both Zionist Union), threatened to submit a long list of objections during the Knesset Finance Committee, which would delay its passage. Gafni was seeking amendments that would exempt heirs who get possession of less than half a house from the category of investors.

Meanwhile, the finance committee’s legal adviser, Sagit Afek, said the previous hike in the purchase tax expired at the end of 2014, and the government would have to return taxes paid since then. The Justice Ministry, which is facing a class-action suit on the matter, said the rates automatically remain in effect because the Knesset dispersed for early elections.

Tax Authority director Moshe Asher said that if the government loses the suit, it would have to refund some 200 million shekels to taxpayers.

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