The law to increase the purchase tax on apartments went into effect on Sunday: 8%

The law to increase the purchase tax on apartments went into effect on Sunday. Under the new law, purchase tax brackets on investors will be changed from three to two. The tax rate will increase from 5% to 8%. The tax for apartment buyers worth up to NIS 5.348 million will be 8%, instead of 5% -7% to date. Buyers of a higher value investment apartment will pay 10%, as has been the case so far. The Ministry of Finance now hopes that raising the tax will curb the purchases of real estate investors.
The tax increase was approved in the Knesset without significant changes from the bill submitted by the government. The main change is the fact that the tax was raised by a temporary order, i.e. temporary legislation for three years with the possibility of extension for two years, and not as a permanent law. In an attempt to balance the decision, the committee announced that it would discuss a bill to ease the purchase tax on apartment buyers and immigrants. However, the chances that the private member's bills will be passed are low. Government policy is to provide support to those eligible through the reduced housing programs.
The purchase tax on investors in apartments was raised last time as part of the government's fight over apartment prices, and its purpose was to reduce the demand for apartments and moderate the price increases in the industry. In July 2020, the previous Minister of Finance, Israel Katz, decided not to extend the temporary order for raising the tax, and he returned to his previous level.
Data from the Ministry of Finance show that following the previous tax increase, the share of investors in the housing market fell by less than 10% compared to 30% in some periods. In addition, the Ministry of Finance indicates that in years when the tax was high, investors reduced the stock of dwellings in their possession by 26,000 dwellings, compared with an increase of 58,000 dwellings for investment in the period between 2010 and 2016 (date of tax increase).
Data from the Chief Economist at the Ministry of Finance indicate that in recent months - when the purchase tax was relatively low - there has been no increase in the stock of apartments for investment. This is because investors sold apartments in a similar number to those they bought.
However, contractors and sales offices have in recent weeks indicated a keen demand from investors just before the new taxation takes effect, and the phenomenon - which was also seen on the eve of the previous tax hike - could cause sales figures to rise and apartment prices rise in October-November. Advances in acquisitions are also expected to lead to a decline in investor acquisitions in December.
Thus, the main test for the impact of the new law will be in the first months of 2022. In the past, the tax increase has also led to an increase in investments in commercial real estate purchases, especially in office buildings and Israeli investments in overseas real estate projects. And now it will be possible to examine whether some of the investor activity will be diverted back to these markets.