Under the heading “Correcting distortions in real estate taxation to encourage continued price declines in the housing market”, the draft law on settlements, published today (Thursday), hides some significant amendments. Experience shows that the very fact that they were included in the draft law as a statement of intent – even if they are not approved in the end – may affect the market.
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One section is related to the high taxation on investors. Today, those who buy a residential apartment and already own an apartment, can sell the old apartment within 18 months and not be considered an investor. The current proposal is to return the period to 12 months only. Those who do not sell within a year, will be forced to pay a purchase tax on the new apartment at a rate of 8% on the full price. It is possible that this section will now put apartments on the market whose owners hoped to gain more from the price increase and will now have to be careful about the tax increase.
Section 4 proposes to “correct the distortion created in the taxation of shell apartments so that it is clarified that the purchaser of a shell apartment will be liable for the purchase tax rates imposed on a residential apartment.” Most of the apartments that are sold at Ramat Mafat are actually luxury apartments, and in the explanatory notes to the law it is stated that “Due to the wording of the section, there is a dispute regarding whether Mafatat apartments are defined as residential apartments for real estate taxation purposes, and if the purchaser of the apartment is liable for the higher purchase tax rates imposed on the purchase of a residential apartment for investment. From a substantive point of view There is no justification for buyers of shell apartments to benefit from the taxation advantage, and avoid paying the purchase tax rate imposed on residential apartments. Therefore, it is proposed to state explicitly in the law that a shell apartment will be subject to purchase tax as a residential apartment.”
Therefore, for those who were thinking of buying an apartment in Ramat Mataf and then selling it with exemption from purchase tax – this window is closed.
Hatbah in order to release land for construction
It is also proposed in the draft Law of Arrangements to give a benefit designed to release land for construction: to set a reduced appreciation tax rate of only 25% for private land owners to those who sell land that is suitable for building at least 15 housing units, and who bought it between 1961 and 2001. The reason for this, stated in the explanation, is that those who bought land during this period are now subject to a linear tax rate approaching 47%, and in order to encourage them to sell, a tax benefit is needed that will compare the conditions to those who bought since 2001. To encourage building on the land, and not just selling it , it is proposed that the tax benefit will be given only on land that is subject to a construction plan and only if the construction is completed within four years.
Attorney Meir Mizrahi, an expert in real estate taxation, says that the bill is mostly correct: “I appreciate the attempt to release land for construction. It’s a smart proposal, but in my opinion it should be returned even to the land for eight apartments as it was, because the market is going into recession, and there is not much land for 15 apartments.”
Another significant clause is also intended to speed up construction, according to which those who purchased land for residential construction but did not build on it, will not be able to benefit from a favorable calculation of the appreciation tax unless they have issued a building permit by the end of 2026.
On this, Advocate Mizrahi says: “There is an aggravation here. In 2014, the tax authorities abolished the exemption that was once every four years and in return gave the public the preferential tax – all the profit until 2014 is tax exempt, and since then liable to tax – so now they say it is only for those who built it? Let’s say someone inherited land and couldn’t get a building permit – he ate it and will lose from this section. In fact, those who failed to obtain a permit receive a penalty, but this is not fair. There was a government promise here that was given in 2014, now a change is being made again. The issue of residential apartments needs to be stable, you can’t change all the time,” concludes Mizrahi.
Attorney Mizrahi adds that “it is a shame that such significant reforms are made in the Settlements Law, without a comprehensive and orderly discussion with all stakeholders. And if such a reform is already being done, it would be appropriate to try to promote urban renewal projects through taxation as well. Today, an entrepreneur who wants to pass on a project is taxed twice, and sometimes this stalls projects at a time when the country is yearning for urban renewal.”