Israel's Next Government Faces Crucial Property Tax Decision

Israel's real estate market is bracing for uncertainty as a temporary order on purchase tax for additional properties is set to expire in January, with the upcoming elections delaying a government decision. The current order, which levies an 8% tax up to NIS 6.05 million and 10% above that, was extended to February due to the election period. If the order lapses, the tax rate for additional properties will drop significantly to 5% in the first tier, potentially causing investors to postpone purchases in anticipation of lower costs, leading to a market freeze.

This cyclical uncertainty has become a recurring issue, with the government often making last-minute decisions that disrupt market stability. Investors have already shown reduced activity, with the first two quarters of 2026 recording some of the lowest investor purchase rates in years. This trend is exacerbated by high interest rates, but the potential tax reduction is a major factor.

Professionals within the Finance Ministry are divided. Some advocate for making the current higher tax rates permanent to ensure market certainty, while others believe a return to lower rates is necessary to stimulate the stagnant real estate market. The Tax Authority has not taken a firm stance, but some within it suggest lower rates could boost transaction volume and thus state revenue.

Historically, purchase tax rates for investors have fluctuated significantly. Rates were raised in 2011 and again in 2015, with investors often adjusting their buying patterns in anticipation of these changes. A reduction in 2020 saw a temporary increase in investor participation. The current debate also overlooks the rising cost of rental housing, which has outpaced general inflation.

Developers are reportedly pressuring for lower taxes, citing unsold inventory. There is a sentiment that lawmakers may be reluctant to enact legislation maintaining higher taxes amid public pressure and the need to boost the construction sector. The Finance Ministry had previously argued that higher taxes aimed to curb investor demand and cool rising housing prices.