From The Kalkalist, 2020.07.12, Dror Marmor

In 2015, Kahlon raised the tax to 8 % and reduced the rate of investors in the housing market by tens of percent. Fear: The tax cut may boost price increases.


Finance Minister Israel Katz intends to submit for approval this week at the government  session the reduction of the purchase tax for housing investors back to 5%. At the end of the year, the temporary directive of former Finance Minister Moshe Kahlon, which in June 2015 raised the first tax bracket to 8% and reduced the proportion of investors among all apartment buyers from 30% to only 13%, will expire.

Katz prefers to cancel immediately the temporary directive, in order to get out of the stalemate in the housing market. At the same time, the Ministry of Housing has already warned that a sweeping tax cut could re-fuel the housing market and raise prices sharply.

Currently, the purchase tax for those who purchase an apartment that is not their only apartment is 8% from the first shekel up to a price of NIS 5.3 million. Above this amount, the tax jumps to 10%. With the cancellation of the temporary directive, the purchase tax will be about 5% up to an amount of  NIS 1.7 million, 6% of it up to an amount of NIS 3.5 million, 7% over NIS 3.5 million and the tax bracket of 8% will apply from NIS 5.3 million. A 10% tax will only apply to over NIS 16 million.

Last year, investors purchased only about 14,000 apartments, compared with more than 30,000 investment apartments purchased in 2015 – most of them prior to the entry into force of the new directive. According to data presented by the Treasury, investors’ purchases last April have reached only 245 apartments, a historic low and a sharp decline of 76% compared to April 2019. The “inventory” of apartments held by investors which is the ratio new purchases minus sales, decreased monthly and from April 2016 to last March 23,500 apartments were deducted from it.

The Treasury’s assumption is that the lack of investors from the housing market presently due to the uncertainty ahead of the end of 2020 provision, is already halting many projects and could severely affect new housing construction prevision. According to the Treasury’s targets, the market needs to start construction of about 60,000 apartments a year, but even in recent years it has barely passed the 50,000-apartment’s threshold.

This is largely due to the fact that the number of early sale projects (presale purchases) are intended in advance mainly for investors (who are willing to wait a long time before taking possession of the property, in order to obtain an appropriate discount), and also because of the prerequisites for obtaining financing from banks to effectively start construction.

The one who is expected to oppose radically to the purchase tax reduction is the Housing Minister Yaakov Litzman. A few weeks ago, Litzman demanded that the Minister of Finance to reduce the purchase tax to 5% only in the periphery. Litzman mentioned  in his call to Katz that “the current rate of taxation has had a positive effect on curbing demand for investment in apartments, especially in the center of the country,” and called on the finance minister to support the tax cut in the periphery, precisely to continue the same trend: “curbing investor demand in the center, and shifting demand from the center to the periphery due to the tax differentials that will be created and continuing new construction in favor of the demand for investment apartments.”


Litzman has estimated that peripheral purchases in the periphery will help to lower rental prices in these areas, as they will increase the inventory of rental apartments – and also increase the State’s fiscal revenue due to the return of investors. on the market.

In addition, the concern is, of course, that the return of investors following the tax reduction will fuel housing prices, which have risen by about 4% in the past year as well. Katz will try to convince ministers that investor purchases will mainly support the real estate industry, flow money into the state coffers (less tax, but more deals) and also add rental apartments to the market, at a time when many young people cannot dream of buying their own apartment.