Ayelet Shaked Calls for Lowering Purchase Tax on Second Homes

Former Interior Minister Ayelet Shaked stated at a tax and business conference that the conditions in the Israeli real estate market have changed, necessitating measures to attract Israeli investors back. She argued that the 8% purchase tax on a second apartment, initially implemented to curb price increases and remove investors, is no longer justified. Shaked explained that with attractive alternatives in the capital markets, investors have shifted away from real estate. She believes reducing this tax could encourage investors to return to Israel from countries like Cyprus and Greece, emphasizing that tax reductions stimulate growth.

Shaked also highlighted the construction industry's struggles, citing sharp increases in building costs, particularly labor. She noted that the shortage of workers since the war began has significantly raised execution costs, impacting the economic viability of new projects. The cost of employing a foreign worker in construction, she stated, reaches NIS 32,000-35,000 monthly, which is double the cost in Germany and 15 times that in the UAE. Shaked attributed this to the government's post-October 7th decision to halt Palestinian worker entry without sufficient replacement.

She further pointed out that these rising execution costs are not fully reflected in the construction input index, eroding company profits and causing them to reconsider new projects. This issue is particularly acute in urban renewal, a key growth engine for the sector. While many urban renewal projects are now moving to execution, increasing housing supply, high costs and local authority fees are jeopardizing their feasibility.

To address this, Shaked proposed revising the economic model for urban renewal projects. Instead of the current 17% developer profit margin, she suggests planning for a 22-23% expected profit. Any profit exceeding 17% could then be transferred to the local authority, providing developers with a larger safety net during planning without sacrificing the municipality's share of higher-than-expected profits. Shaked warned that without such adjustments, developers may abandon projects after years of planning due to increased costs and evolving requirements, potentially impacting future housing supply.