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The purchase tax increase came into effect.

These are the consequences

In order to fight the rise in real estate prices, the bill to raise the purchase tax has passed and entered the records today. Is it good, is it bad and what will it do to prices in the long and short term? We turned to a number of experts on the subject.

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Walla!

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Sunday, 28 November 2021, 14:03 Updated: 14:21

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Cold water on the face of real estate investors. Today (Sunday) the law came into force according to which the purchase tax applicable to buyers of a second apartment in the amount of up to NIS 5.3 million, will increase from 5% to 8%; above this amount, investors will pay tax of The move is intended to cool the demand for investors in the housing market, which has been growing since the purchase tax was lowered in July 2020, by the previous finance minister.

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Will it really cool investors?

(Photo: Reuven Castro)

The reduction in the purchase tax rate by Finance Minister Israel Katz has led to a sharp increase in the number of residential apartments purchased for investment purposes, both in quantitative terms and as the rate of total transactions in this market. The transactions in the housing market compared with a rate of about 13% of the total transactions in the months before the reduction. At the same time, there was an acceleration in the rate of increase in housing prices. At a rate of about 10% - the highest rate of increase in housing prices since 2010.

In order to rectify the situation and calm the market, the government decided to raise the purchase tax. The question is whether the move will prove itself and what will happen in the long run. A line of real estate experts.

Will raising the purchase tax cool the market in the short term?

Adv. Chen Destgor, partner in the real estate department at Salomon Lifshitz & Co.: "The last time the purchase tax rates were raised for investors, there was a certain cooling in demand and, accordingly, a certain slowdown in price increases. Global, which leads to an increase in raw material prices and radical changes in the construction input index, regardless of the rising demand for apartments. "They will, to a certain extent, lead to a slowdown in demand from investors."

However, the market is adjusting immediately, she notes: "While the government is raising the purchase tax rates, advertisements have already surfaced on the radio that: 'Entrepreneurs will absorb the increase in the purchase tax for you.' Israel, but the insurance companies, for their part, are launching campaigns informing the public that through them the possibility of receiving such financing still exists.

Some slowdown.

Adv. Chen Destgor (Photo: Studio Shoham)

Yishai Roth, VP of Marketing and Business Development for Real Estate Entrepreneur Shoval Residential Complexes Group: "In the short term, raising taxes will cool demand but in my estimation, in the long run prices will continue to rise. Why? First, people understand that the best investment is in real estate. Evidently, since the establishment of the state, prices have only risen. In addition, construction costs are rising significantly, among other things, due to the increase in consultants' salaries and regulatory requirements from developers, along with the surge in land prices. "

Adv

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Yossi Musari is a partner in the law firm Musari & Habib & Co. "In a market of 'sellers only' that is rising frequently, raising purchase tax does not materially change the decision to buy or not to buy. In any case, buyers believe that an additional gift could lead to a price increase that would eliminate the marginal effect of additional purchase tax."

Shaike Nafha, entrepreneur and owner of Salit, adds: "The move will cool the market for only a few weeks. It should be remembered that in the last month there has been an onslaught of investors who wanted to buy apartments before raising the tax.

Adv. Nadir Aviad, Head of the Real Estate and Finance Department and a partner in the law firm of Adv. Yigal Borochovsky & Co.: "And the rental mechanism does not exist in our DNA. Also, since the tax law provides exemptions in certain situations, in my opinion, there will be a significant increase in the use of various consultants, such as tax consultants and expert lawyers, before buying an apartment, which has not happened before."

In the long run prices will continue to rise.

Adv. Yishai Roth (Photo: Yachz)

Will we see a return of price increases in the long run?

Shaike Nafha: "In the long run - what has been is what will be. In a reality where interest rates are low and there is nowhere to invest the money, real estate is becoming attractive. In addition, in my estimation, this step will also cause an increase in rental prices. "

Advocate Musari:" Probably yes.

Adv. Nadir Aviad: "In my opinion, yes. In light of the fact that land reserves, especially in areas of demand, are declining and on the other hand there is an increase in life expectancy and the divorce rate - there will be no lull in long-term demand. In addition, it should be noted the expansion of options for obtaining housing credit and the high competition in the mortgage industry, as well as the increase in the wage level, which increases the ability to obtain a loan. "

Adv. Destgor: Israel is the western country where the growth rate of the population is among the highest. It is clear that in such a reality, a 3% increase in purchase tax for investors, even if it slows demand, will not stop them. Which will compensate for the increase in taxes on their purchase. Please note that on June 24, 2015, the increase in the purchase tax for investors to 8% came into effect. A slight decrease in the number of investors, but at the time the tax increase joined additional restrictions that applied to investors such as limiting investors to receive only 50% mortgage from 2012; Housing prices have continued to rise. "

What has been is what will be.

Shaike Nafha (Photo: Tamar Mitzpi)

How will the increase in the supply of apartments for rent affect the prices of apartments

Yishai Roth: "Increasing the supply of apartments for rent will not affect rental prices because people want to invest in real estate.

At the most basic level, everyone wants to own an apartment and live in their own apartment.

In addition, tens of thousands of apartments are missing every year, so the demand will continue to be huge. "

Adv

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Ofer Twister, who owns a law firm that deals with planning and construction:" The supply problem cannot be solved by raising or lowering the purchase tax.

The apartment resource should be used for both sale and rent but in total it should be used for the needs of the market as a whole. If in total the market needs 50,000 apartments a year and you provide only 40,000, the prices will go up.

If you provide 60 thousand prices have gone down.

This is a basic rule in economics.

It is clear that reducing the inventory of rental apartments will jump the high rental prices as well (at least in areas of demand). "

Adv. Yossi Musari: "A significant increase in the supply of apartments for rent may have an effect only in a few years, as it is not immediate and involves the approval of plans.

In addition, if interest rates rise, the market may balance "

This is not the way to solve the supply problem.

Adv. Ofer Twister (Photo: Gil Hadani)

What about rental prices?

So far she has not been registered

Adv. Nadir Aviad: "In the short term, we will see an increase in rental prices. "Even when Finance Minister Moshe Kahlon raised the purchase tax, we saw a halt in the purchase of apartments by investors but not by first-time home buyers, which led to a shortage of rental apartments, which in turn led to an increase in rental prices."

Advocate Musari: "Rental prices are rising but not at the same rate as the rise in housing prices. This is explained by the desire of buyers to settle for a lower yield than in previous years. The main thing is to make a purchase. In my opinion, in the near future, rental prices will rise and be adjusted to the rise in apartment prices. "

Yishai Roth: "In my opinion, rental prices will rise, given the fact that the real estate market is in a very explosive state. There is an increase of tens of percent in the prices of raw materials, and transportation costs that are not directly related to the reality in Israel but to a global phenomenon, which stems from the corona. To this must be added the rise in land prices. "

Do not count on a drop in rental prices.

Adv. Nadir Aviad (Photo: Yarden Shmueli)

Is this the desired move that will meet demand and cool prices?

What should the government do for the real estate market to behave in a normal and stable way?

Attorney Ofer Twister: “Looking for the coin under the flashlight.

The only real solution is to enlarge the blanket and not pull it from side to side.

In our case, from the rental side to the sales side.

It is absolutely clear that if it works as they want and the investment channel hurts, then within a year or two there will be a shortage of apartments for rent.

The solution lies in increasing the stock of apartments and removing barriers.

First, at the plan level.

"For this purpose, the activities of the Hotamal must be strengthened. Secondly, the process of issuing building permits must be simplified. For this purpose, the plans and in some cases also the planning institutions must be improved, with regard to the quality of manpower in places where this is required."

Advocate Musari: This is really not the right move to cool the market, but perhaps to enrich the state coffers.

Free money from investors in the market and directed to the real estate market will not deter purchases. The government must make a comprehensive decision to increase the supply of housing in a way that expropriates the planning procedures from local committees and these will be concentrated Includes understanding the needs of the hour, including increasing the supply of housing. A local committee is obviously considering other considerations including internal political considerations related to the interaction between the mayor and his constituents. In many cases, mayors delay approved plans for construction, just so as not to "quarrel" with their constituents who prefer to freeze construction in their city and raise apartment prices in the city in the absence of supply.

Adv. Nadir Aviad: "In the first decades of the state, land prices were low because it wanted to settle the country, but in the last twenty years we have abandoned the original idea that every citizen should have the means to buy an apartment.

We have become a capitalist country.

There is a jump in land prices and as a result - in apartment prices.

The state is enslaved to income from land taxation and has forgotten the citizen.

Absolutely not the right move.

Advocate Musari (Photo: Yachz)

This move, is the least bad, notes a rare attorney, “but it is not enough. The problem needs to be addressed from the root. Land should be thawed and the supply increased and at the same time shorten the planning procedures that take many years, which leads to a lack of supply of apartments. It is time for the State of Israel to combine forces with all the relevant factors, such as the Planning Administration, local government, RMI, etc. in order to produce short planning and construction processes in the short term and not for another 15 years. "

Yishai Roth: "This is a very bad move for the country because real estate is its fuel and oxygen. In the long run the move will not cool prices. The government should lower the VAT on the raw materials intended for construction. Instead of raising the purchase tax, people should be allowed to buy apartments. Tenders and not to speculate on land. "

Advocate Destgor: "Along with raising the purchase tax, the state must increase the rate of land marketing, consider holding tenders in which the winner is not necessarily the highest price - which leads to a rise in prices by the state, and alleviate bureaucratic barriers in advancing licensing procedures.

"The changes to the mornings and the lack of stability create the exact opposite effect, and that is - an onslaught on the real estate market as we have now seen.

Shaike Nafha: "I call on the government - stop running the market. Run a housing production factory. The state must continue to plan more and more and release traffic jams, not only on administrative lands but on private lands. The center alone has over 100,000 housing units on Private lands and the time has come for the state to promote them and private landlords to liberate those lands.

Another important step is to move to self-licensing. "

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