Think you'd like to lower housing prices? It appears the state is the main factor driving their rise. Income from purchase and betterment taxes rose by 70%, and that's before taking into account the purchase tax meant to deter investors, which was recently raised from 5% to 8%.
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How much is the real estate spree bringing into the state's coffers, and should the government to reduce its activity volume, that is, the tax burden on residents and developers? Tax data published recently reflects a high pace of activity in the real estate sector, which of course increases the state's income from taxes.
Last week, the Israel Tax Authority published a review of state income from land taxation and real estate transactions in the years 2013-2021. What does the state stand to profit from deterring investors? Here is the official data: after lowering the purchase tax for investors on July 29, 2021, in January-July 2021 the average monthly income from purchase tax on investment apartments rose by 47%, in a year-over-year comparison, following an increase of 120% in the number of transactions and a 10% increase in the prices of investment apartments.
In an analysis of the demand for investment apartments by location in 2020, a change was seen compared to 2019. Areas where the price level is relatively low – such as Haifa, Beersheba, Tiberias, and Nazareth – saw a significant rise in apartment purchases by investors, between 20% and 30%. Consequently, Haifa recorded the highest number of investment apartment transactions in 2020, with 2,943 such apartments sold. In Tel Aviv, which in 2019 recorded the highest number of purchases by investors, the number of transactions remained almost completely unchanged.
The real estate spree in 2021 went into overdrive after low levels of activity in 2017-2019 and a crisis in 2020. Income from betterment tax rose in January-October 2021 by 70% compared to the same period in 2019, totaling NIS 6.3 billion. Income from purchase tax rose by a similar rate – 72% - and totaled NIS 9.8 billion. In October 2021, a sharp rise of 248% in income from betterment tax was recorded, and income from purchase tax rose by 198%. This was partly due to the completion of transactions and the submission of reports from September, during which the High Holidays were observed on most of the month's business days. Another reason was the market's reaction to the expected rise in the purchase tax for investors.
Analysis of the purchase tax by property shows that most of the income from purchase tax was collected from the purchase of apartments – 57% in 2020. Out of these, 32% were investment apartments, 14% were purchases by first-time buyers, and 11% were purchases by apartment upgraders. Another significant part of purchase tax income derives from land purchases, totaling, in 2020, 30%. Income from taxes on purchases of buildings accounted for 10%, and the remaining 3% derived from actions taken by real estate associations.
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A prime source for the collection of betterment tax is the sale of lands for residential purposes – totaling NIS 3.1 billion in 2020, which amount to 52% of the total taxes collected. Sales of commercial buildings accounted for another 23%, or NIS 1.4 billion, in 2020. About 17% of the year's betterment tax was collected from the sale of residential apartments. In January-September 2021, the effective betterment tax rate in sales of investment apartments reached about 12%.
These are the numbers. Keep in mind that the spree is ongoing. In November, Israeli banks approved mortgages totaling NIS 11 billion.
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