By Irit Avissar
May appears to be a particularly strong month for mortgage taking due to concerns that the purchase tax on home purchases for investment might rise. Sources in the banking sector estimate that mortgage taking in May might cross the NIS 5 billion threshold, about 10 percent above the monthly average in the past year.
“The past month has seen hysteria for mortgage banks, and contractors have also witnessed and encountered huge demand,” a senior banking source said. Recent months have been strong in the mortgage market. Mortgages worth NIS 5.6 billion were taken in March, with more modest amounts of NIS 4.71b. in April, NIS 4.62b. in February and NIS 4.57b. in January
The positive sentiment began with the cancellation of former finance minister Yair Lapid’s 0% VAT plan, which brought many young couples off the fence and into the market. The aftermath of the cancellation is still being felt.
Another likely factor is that Finance Minister Moshe Kahlon plans to raise the purchase tax on homes bought for investment.
By Amiran Barkat
and Drior Marmor
The Finance Ministry is recommending to Finance Minister-designate Moshe Kahlon a 20-percent tax on purchases of housing for investment purposes. Kahalon has already declared he intends to introduce a steep tax hike within the framework of the coalition agreement his Kulanu partyy signed on Wednesday with the Likud.
The agreement does not specify the rate of the new tax, which applies to purchases of apartments by people who do not intend to live in them. Kahlon spoke of raising the purchase tax to 25%, but he would be satisfied with 20%, people familiar with the matter told Globes.
An internal probe by the Finance ministry Budget Department showed that a 20% tax would e optimal for state tax revenues, while a higher rate would reduce tax revenues due to a sharp drop in the number of deals.
The measure is quite dramatic, amounting to hundreds of thousands of shekels for an average apartment. The current tax on housing for nonresidential purposes is graduated : 5% on the first bracket and up to 10% on the fifth and highest bracket of NIS 15 million or more. A simulation conducted for an apartment costing NI 2m. shows that the recommendation quadruples the purchase tax on an investor from NIS 108,000 at present to NIS 400,000, while a person buying the same apartment for residential purposes would pay NIS 20,000.
This tax hike will cause an earthquake in the housing market, a quarter of which is composed of those purchasing housing for investment purposes, according to the most conservative estimates.