Excellent: The main thing is the intention – at least the Treasury wants to correct the distortion of property taxes
The chances of implementing the draft Arrangements Law published this week are slim, but it is permissible to pardon finance officials who stubbornly point the finger at the problem that perpetuates the housing crisis: the too-low property tax rate on apartments, which convinces (and rightly so) local authorities to oppose residential construction.
In the previous Arrangements Law, the Ministry of Finance tried to increase the property tax every year by 2%, but now they have decided to attack from a different direction – through a fund that will transfer NIS 2,000 each year to each local authority for each addition of a housing unit.
The main source of money will be office and store towers, in a differential calculation: “so that authorities with the largest business income will set aside 40% of the increase in their income, compared to only 10% for non-residential property income.” Now, at least in theory, local authorities will stop dreaming only about building office towers, and they may even dream of more residential apartments. Along the way, a city like Tel Aviv will have to finally start sharing with us the great wealth that comes from its glittering towers.
Insufficient: The late wake-up call from the Supervisor of Banks
The picture presented this week by the Supervisor of Banks regarding credit distributed in recent years to the real estate industry is frightening, and it mainly reflected the biggest problem of our regulators – who at best know how to raise a flag late.
Examples: According to the Supervisor of Banks, the fierce competition between the banks led them to distribute money to real estate entrepreneurs at a financing rate of “almost 100% of the value of the land”. It is not enough, the banks provide credit to developers for a period of one year or more against inventory of unsold apartments. Directly exposed to risk but only to the chance of success of the project, “and therefore it may prefer to increase its degree of exposure to risk.”
Instead of preventing the phenomenon, the Supervisor of Banks is now recalling telling us about the increase in risk appetite, which has pushed banks to risky lending.