This government is repeating the sins of the past and eliminating investors from the market. Minister Ayelet Shaked is currently fighting attempts to raise the transfer tax back to 8%.
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In 2015, then-Finance Minister Moshe Kahlon raised the tax on real estate investment deals from 5% to 8%, seeking to spook investors away from the investment apartment market and thereby reduce demand for housing and improve the position of young buyers – even if it meant losing money in favor of investments abroad.
Last July, Minister Israel Katz reinstated the 5% tax and was severely criticized for doing so, though in my opinion, the criticism was unjustified. Investors are and always have been the weak spot of the real estate world. They're an easy target for attack, but the results bring more harm than good.
According to the report of the Chief Economist at the Ministry of Finance, investors are continuing to lead the increase in the number of real estate transactions. In July, investors purchased 2,600 apartments – thrice the low number recorded in July 2020 and 80% more than in July 2019. Compared to the particularly high level recorded in the previous month (June 2021), purchases by investors fell by 10%. The proportion of investment deals out of the total number of transactions was 20% - twice that of July 2020 and 1% lower compared to the previous month.
In an analysis of the cities leading in investment purchases in July, most prominent were Eilat, Ashkelon, Harish, and Sderot, which were listed high compared to their size. Tel Aviv, Jerusalem, and Haifa led in the number of investment transactions. Another finding was that in quite a few cities, investors preferred to buy cheaper apartments than in the past.
The number of apartments sold by investors in July was 2,600, like the number of apartments bought. Compared to July 2020, that represents an increase of 36%, and an increase of 27% compared to July 2019. Compared to the previous month, sales by investors fell by 5%.
The inventory of apartments held by investors remains basically unchanged, after a significant drop between April 2016 and the reduction of the transfer tax last July.
What's happening on the contractors' front? Sales by contractors on the free market accounted in July for 3,300 apartments – a 70% increase compared to July 2020 and a 58% compared to July 2019. Compared to June 2021, this represents a decrease of 7% in sales by contractors on the free market.
First-time apartment purchases on the free market accounted in July for 4,500 apartments – a 28% year-over-year increase and a 3% decrease compared to the previous month. Purchases by second-time home buyers were somewhat lower, at 4,400 apartments – a 25% year-over-year increase and an 11% decrease compared to June 2021. Incidentally, preliminary data for August indicate a sharp rise in the number of transactions.
So if recession is on your mind – we aren't there at all. Demand and prices continue to break records month after month. What is the solution? Exactly – supply.
The big news of the week: thousands of housing units in high-demand areas will become available for sale and rent. The Internal Affairs and Environment Committee approved the bill to convert employment zones to housing.
An employment zone can now be converted to housing in buildings not yet built, for up to 30% of the total territory of the building rights approved for the lot. The new procedure will allow permits to be issued with no need for a plan, and with up to 10% of the land to be used as public space.
The problem – opposition on the part of city mayors. A special national committee will be set up, comprised of representatives of local government, which will be authorized to approve plans for changing the designated use of territories from employment to housing without limitations on size or scope.
More news: the Internal Affairs Committee approved the section on institutional rent for the second and third readings in the Knesset plenum. The government agreed to the committee's demand to expand the authority of non-independent local councils to grant increased building rights of up to 50% in rental housing complexes. The councils' authority was expanded to include all kinds of lands. Independent local councils will be able to expand building rights by up to 200%, if they have no comprehensive plan. In case a comprehensive plan exists, the council will be able to expand rights by up to 60%, and up to 120% pending approval by the district council.
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The intention is to convert employment areas into mixed-use areas that will include both employment and rentals. Developers who will build units for long-term rent will receive additional building rights. Today, the rental market comprises 30% of the housing market, while institutional housing represents less than 1 percent.
Customers prefer buying apartments because the rental market is not attractive – although a large percentage of buyers lack the funds for a down payment allowing them to purchase a property near in-demand areas. The aim of the law is to offer high-quality, stable rentals that will allow mobility, encourage transfers to high-employment areas, and increase supply. Following a request by MK Eitan Ginzburg, one of the criteria for eligibility for reduced rent will be an income test.
So – there are plans, but this is just the beginning. At least strenuous efforts are being made.
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