How the New 'Government Housing Plan' Affects Foreign Buyers

How the New "Government Housing Plan" Affects Foreign Buyers

There have been rumors swirling around since the end of October about a raise in purchase tax rates for foreign and investment purchases. This has led clients to rush into the market in hopes of speeding up deals before any price increase goes into effect.

Well, the rumors seem to be true. A proposed new “Government Housing Plan” is expected to be passed by the Knesset imminently. The plan will see a raise in the purchase tax rate as well as a potential bar on AirBNB rentals. 

The purchase tax rate will increase from 5% to 8% on all investment and foreign purchases in Israel. This will be payable on the first (approximately) 5.3 million NIS and the tax over that will be 10%. The Israeli government is making an effort to slow down the market and reduce foreigners and investors from purchasing available homes. 

Basically, once the tax increase hits, the government hopes that there will be a  decline in the amount of property transactions from people who purchase but then do not live in the apartments.

What Does This do For the Market?

The question is: why should investors or foreigners be prevented from purchasing homes in Israel? What good does this do for the market? 

The answer is that the government wants to get a hold on pricing in order to stop prices from rising and even bring prices down. The government believes that by reducing foreign purchases and making it less attractive for investors, it will allow more opportunities for locals to purchase their first homes at more controlled prices.

We have seen this happen before about 6 years ago, and it did have an effect on the market, but more so in the smaller cities of the country. Foreigners continued to buy regardless of the price increase, especially in the Jerusalem area.

The reaction we expect based on our clients is that if people truly want to own a home in Israel, the raise in the purchase tax will not prevent them from doing so. The truth is, supply of properties is so limited that even if 50% of buyers decided not to buy, the demand would still be so high in the specific areas we work in. Moreover, this is expected to be a long-term plan; a raise of 3% won’t stop people from buying a property in Jerusalem or Israel ever again.

Potential Ban on AirBNB Rentals

Another law that has been put in for passing is the ban on AirBNB rentals throughout the country. Why would the government want to stop this?

The goal here is quite clear: a ban on allowing property owners to rent out their empty homes on holidays or for the summer will possibly result in less purchases by rich investors and potentially  property owners selling their homes, which frees up more apartments for young couples or families to buy. This ban seeks to directly improve the low supply versus high demand that Israel has been seeing for quite some time.

As with all new government plans, we will have to wait and see how this will play out. We highly recommend our clients not to be discouraged by the upcoming raise in the purchase tax rate; rather, to factor this into your budget and discuss it with your team or financial advisors, lawyers, and real estate agents to ensure a smooth transaction.

To read further on this subject, have a look at Globes' article about the New Housing Plan.

To start your property search today, contact us at office@capitil.com.