Trying to Control Housing Prices: Tax Breaks on Second Homes to Be Cancelled

Finance Minister Yuval Steinitz announces cancellation of Betterment Tax exemptions on the sale of housing bought as an investment, to take effect in 2013.

Finance Minister Yuval Steinitz announced a number of changes in real estate taxes yesterday in a further attempt to stop the inexorable rise in housing prices. He announced the cancellation of Betterment Tax exemptions on the sale of housing bought as an investment, to take effect in 2013.

The treasury hopes investors will take advantage of the period until then to sell off second or third residences and save on taxes, thereby increasing the supply of housing and lowering prices.

Yuval Steinitz
Tomer Appelbaum

The tax, Mas Shevah in Hebrew, is literally Betterment Tax, but in fact it is really a capital gains tax on the inflation-adjusted increase in the value of a residence.

Steinitz also announced an exemption on capital gains taxes on the sale of units presently used as offices, if they will revert to use as housing.There are some 50,000 apartments built as residences now used for business, said Steinitz.

Steinitz called a special press conference yesterday in the Finance Ministry to announce the changes.

The treasury's intention is clear: They want people to sell off homes bought as investments, and want to encourage them to do so now. The present tax regime allows an exemption on capital gains on homes only once every four years. Now, investors are being encouraged to hurry up and sell by the end of 2012.

Steinitz said the steps the Finance Ministry has taken in the past to lower housing prices were too small, and the new steps should alter the dynamics of the real estate market. If not, the Finance Minster said he had even bigger weapons at his disposal.

These steps follow a number of other changes over the past year aimed at cooling down the real estate market, such as limitations on mortgages imposed by the Bank of Israel and other tax changes.

MK Moshe Gafni (United Torah Judaism ), the chairman of the Knesset Finance Committee, also praised Steinitz for taking action. "Every step, even the very smallest on the matter of housing, is correct and appropriate. We can see the government has internalized that the [housing] shortage is a national problem. We must continue to act on all possible fronts to solve the problem," said Gafni.

Not everyone is happy

But not everyone was pleased with the treasury's changes. Eran Rolls, the chairman of the Israeli Building Center called it "nothing but media spin that does not the solve the real problem: a lack of apartments for less than NIS 1 million for middle class families and young couples. Even if the prices fall to NIS 2.2 million to NIS 2.5 million per apartment, will that help them find an apartment?" said Rolls.

"The Finance Minister continues to take steps that do not help the construction industry and home buyers, and whose only goal is to enrich the state's coffers. It seems the numerous press conferences are meant to generate headlines," said Nissim Bublil, president of the Association of Contractors and Builders in Israel.

"Steinitz is playing more with politics than with economics and real estate," said a real estate industry consultant.