Property Tax Revolution

In an attempt to dampen down the enthusiasm of property investors in Israel the Finance and Housing Ministries have announced their next step in the war on rising property prices.

The plan is two-fold; raising the purchase tax rates on those looking to buy an investment property and exempting sellers from capital gains tax on their second apartment for a period of two years.

In this way they hope to encourage those people who jumped on the bandwagon and invested in a second and third apartment to sell out while the going is good, without any tax burden. This will also increase the supply of apartments for first time buyers also lowering the prices and increasing the opportunities.

The purchase tax on a second apartment currently starts at 3.5% and goes to 5% on amounts above 923,070 NIS. The new rates will start at 5% from the start and will go up to 6% above one million NIS and 7% on any amount above three million.

Furthermore there will be a two year amnesty on capital gains tax for people selling two more investment apartments. As of now the law is more complicated than the way most people understand it, but basically you have a period of eighteen months or four years to wait after selling one apartment exempt from capital gains tax. You must consult with a real estate attorney regarding this.

The attempt is to change the discourse of the Israeli public in the hope that they will believe prices will not continue rising, thereby facilitating the self-fulfilling prophecy and prices will come down. investors will sell, the market will be flooded with people trying to get out and things will stabilize. This is in conjunction with previous announcements of the Bank of Israel, the Finance Ministry and PM Netanyahu and presumably to be followed by more, all part of a grand scheme to affect the public’s perception.

Will it work? Time will tell …

Avi

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