Treasury Unveils Revised Tax for Owners of Multiple Homes

New proposal would tax owners of multiple homes 1% of their value starting with the third property.

Finance Minister Moshe Kahlon at the annual conference of the Antitrust Authority, Airport City, January 26, 2016.
Ofer Vaknin

After being criticized for a proposed flat tax on owners of multiple houses, the treasury came out on Wednesday with a new and final plan that would assess homes based on their value. The new proposal came under a torrent of criticism, too.

Under the proposal, called Multiple Assets Tax, owners of three or more homes will pay a rate of 1% of the homes’ worth based on the assessed market value of the property on a square-meter basis.

The proposed rule would give multiple-home owners a great deal of flexibility. The tax wouldn’t be levied on their first two homes and for homes that are liable for taxation, the owner could choose which ones he wanted to be exempt, presumably the most expensive homes. In any event, the top tax would be 1,500 shekels ($393) a month.

The 1% tax comes in place of an earlier proposal to impose a flat tax that would have started at 12,000 shekels a year for the third home owned by a landlord, 10,000 on the fourth and 15,000 on the fifth. Critics said it was unfair because it was unconnected to the home’s worth.

Even with those rules limiting the new tax, the treasury said it expected it would generate revenues for the government of about 800 million shekels annually. But the motivation for imposing the tax isn’t to bring in more tax receipts, rather to discourage people from investing in real estate and making more homes available for people buying them to live in.

Finance Minister Moshe Kahlon has promised to rein in the soaring price of homes but even as he has dedicated much of his time to the problem and undertaken programs to increase constructions starts, prices have continued to climb sharply.

In a treasury statement unveiling the proposed tax, officials also said the tax would help “divide incomes more fairly and reduce inequality.” The Central Bureau of Statistics said the average household income of tenants in Israel is about half that of landlords; their financial and other assets are 15 times those of tenants.

But real estate industry sources said it was unlikely to have much of an effect

“it’s a populistic decision that won’t add a single apartment to the real estate market,” said Ohad Danus, chairman of the Real Estate Appraisers Association. “The decision will remove apartments from the rental market, which is shrinking anyhow, In areas where demand is strong, the tax will be passed on the tenants. Investors with just two apartments will raise their rents, too.”