Buy-It In Israel

Tax changes for the Israeli real estate market in 2011

Posted on 11. Jan, 2011 by Buy-It In Israel Staff in Israel Real Estate, Legal Matters

Israel is in the process of enacting a number of tax changes for 2011 in an effort to cool down spiraling Israel real estate prices and boost the supply of housing in the country.  Some of the tax changes will make it more expensive for investors to buy property in Israel, and others are intended to accelerate the sale of apartments and encourage new construction.  Most of the tax changes are still in the process of a legislative procedure but are expected to be applied retroactively from January 1, 2011.

1. Making investment more expensive:

Over the past couple of years, the number of apartments purchased for the purpose of investment has risen sharply to represent more than 30 percent of all property transactions in 2009. This trend has had a two-fold effect: It has partly contributed to the shortage in available housing, which in turn has led to a surge in real estate prices making it harder for first homebuyers and young couples to find affordable housing. Over the past year, property prices have increased over 20 percent, causing fears of a development of a housing bubble in the market.

To avert the development of a housing bubble, the Israeli government has decided to increase the purchase tax (mas rechisha) on investment apartments, classified as the acquisition of a second or third apartment. For the next two years, that is 2011-2012, the tax will amount to 5 percent on the first shekel to NIS 1 million compared with the 3.5 percent charged until the end of last year. On a purchase amount of NIS 1 million to NIS 3 million, a tax rate of 6 percent will be charged from this year compared with the maximum levy of 5 percent imposed before for any amount between and above NIS 1 million and NIS 3 million. Furthermore on any amount above NIS 3 million for a home, purchase tax of a maximum rate of 7% is being levied from this year. For example, a buyer purchasing a second or third apartment for a sum of NIS 1.5 million will have to pay NIS 90,000 in purchase taxes from this year compared with NIS 75,000 previously. (See our Mas Rechisha calculator to calculate taxes due.)

2. Accelerating the sale of apartments

In addition, the government took a decision to cancel the capital gains tax (Mas Shevach) on apartment sales, for sellers of a second and third investment apartment for a period of two years to encourage the sale of properties and flood the market with available housing. Until now, apartment owners who want to sell needed to wait four years to be exempted from the capital gains tax.

3. Encouraging new construction

Moreover, the government announced short-term measures which are also aimed at easing the surge in property prices by offering tax breaks from 2011 to accelerate new construction and cope with the problem of a shortage in the supply of housing.

From January 2011, the government is reducing the betterment tax rate on private land bought before 2001 from a maximum of 45 percent to 20 percent for a limited period. The land betterment tax is imposed on capital gains generated from the sale of land, if its value has risen as a result of changes in building rights or upon re-zoning. The tax is payable either when a building permit is issued or when selling an asset. The government expects that the measure will support the release and sale of some of the 1.9 million dunams of privately-held land and thereby boost the development and supply of homes.

Contractors will also be entitled for a 15 percent rebate on the price of land tenders issued by the Israel Land Administration if they finish construction of at least 80 percent of apartments in a project in a period of time of not more than 30 months.

© Copyright 2011.

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