Israel Extends Higher Purchase Tax to Curb Real Estate Investors Amid Housing Crisis
At the end of this year, the temporary regulation that raised the purchase tax for owners of more than one property from 5% to 8% is set to expire. Policymakers and Treasury officials currently agree that this tax hike must be extended to avoid fueling demand and rising housing prices, especially as the market direction has shifted. The government aims to protect first-time homebuyers by not easing taxes for investors who compete directly with those struggling to find housing.
A decade ago, then-Finance Minister Moshe Kahlon justified the tax increase by stating that investors should not consume all available housing at the expense of young couples. However, today the policy appears more populist than effective. Paradoxically, Israel grants generous benefits to institutional investors, such as companies and real estate investment trusts (REITs), that buy apartments for rental purposes. For example, Migdal REIT recently purchased dozens of unsold apartments in Kfar Saba and Netanya, benefiting from a reduced purchase tax of only 0.5%, exemptions from VAT and corporate tax, and capital gains tax waivers.
A recent interministerial Treasury report recommends further easing restrictions on these institutional investors, allowing them to sell a portion of their holdings earlier than currently permitted. Critics argue that these incentives encourage accumulation of unsold apartments, prolonging market stagnation and preventing price drops. While private investors face a 5% purchase tax, institutional buyers enjoy substantial subsidies, despite both groups acquiring the same housing units.
The article also highlights the dynamics of Israel’s rental market, noting a growing gap between rent increases for new tenants (6.8%) versus renewals (3.5%), reflecting landlords’ preference to retain existing tenants. Institutional landlords like Migdal report rental price increases exceeding market averages, raising questions about the government’s contradictory stance of taxing private investors while subsidizing large corporate landlords.
Additional economic notes include Shufersal’s plan to import meat directly to increase competition amid rising prices, and the sale of Israel’s largest mall, Kanyon HaZahav, at a price significantly lower than comparable properties, illustrating the complexities of retail real estate management. The article concludes by emphasizing the need for balanced policies that support housing affordability without disproportionately favoring institutional investors.
