Builders Urge Cut in Investor Purchase Tax to Ease Rental Prices

Israel’s Contractors Association has urged the Finance Ministry to lower the purchase tax on people buying a second home, arguing that the higher levy has worsened the rental market. In a letter sent to Finance Minister Bezalel Smotrich, and obtained by ynet and Mammon, the group said tenants are paying the price after the state raised the tax in November 2021 from 5% to 8%.

The appeal came as Israel’s May Consumer Price Index again showed a sharp rise in rents, with new leases up by nearly 7%. The builders said the tax hike reduced the stock of homes available for rent and accelerated rent inflation, which they said has risen at roughly three times the pace seen before the tax increase, to about 19.3%.

Association president and developer Roni Brick wrote that “this is the time to recalibrate,” calling for the removal of what he described as an excessive tax on investors in rental housing. He said the measure has pushed investors out of the market, causing the loss of thousands of rental units and a rise in annual rent growth to 3.4%, compared with 1.1% in the year before the tax increase.

The builders said the 8% tax is set to expire at the end of the year, but the Finance Ministry has already indicated it intends to extend it and has no plan to cut it. The tax applies to second homes priced up to 6,055,070 shekels, and rises to 10% above that level. The association said lowering the tax would bring investors back, expand rental supply, help developers resume building, and could add more than 8 billion shekels in tax revenue, while also easing pressure on rents and housing prices. It also noted that 84,000 unsold apartments are currently on the market.