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Investors rushed to buy housing units in October, ahead of purchase tax hike

Households buying second or third homes up 236% in October, compared to last year, says Finance Ministry report

Ricky Ben-David is The Times of Israel’s Startups and Business editor and reporter.

Cranes on a construction site in Jerusalem, September 1, 2021. (Nati Shohat/Flash90)
Cranes on a construction site in Jerusalem, September 1, 2021. (Nati Shohat/Flash90)

More than 14,000 housing units were purchased in Israel over the course of October, the highest monthly number since June 2015, when over 16,000 units were bought, and an 87% increase compared to October 2020, according to a report this week by the Finance Ministry’s Chief Economist Office.

Over a third of these units (about 4,800) were bought by so-called investors — households that already own one or more dwellings — an increase of 236% compared to the same period last year and also the highest since 2015, the report said.

A quarter of the housing purchases by these investors, or about 1,200, were made on the last day of October when plans to restore a purchase tax of 8% for second-home buyers were announced. The purchase tax, which went into effect on November 28, had been reduced to 5% in 2020 in an effort to get investors back into the real estate market amid the economic slowdown brought on by the COVID-19 pandemic, boost the construction sector, and increase tax revenues. Experts correctly predicted that higher housing prices would follow.

The 8% purchase tax was initiated in 2015 by then-finance minister Moshe Kahlon.

First-time buyers purchased over 5,000 housing units in October, an increase of 47% compared to last year, the Finance Ministry said. According to the Bank of Israel, over NIS 11 billion ($3.54 billion) in mortgage loans were granted in October, up from about NIS 7 billion ($2.25 billion) in September but lower than the over NIS 12 billion ($3.86 billion) seen in June, July, and August this year.

The Finance Ministry indicated this week that the initial figures for November 2021 show a similar uptick in investor purchases in the housing market, further exacerbating a crisis that has been brewing for over a decade.

Housing prices in Israel have surged by 10.3% in the past year, according to data released Wednesday by the Central Bureau of Statistics (CBS) that looked at prices in September-October 2021 compared to the same period last year. Last month saw housing prices climb 0.9%, the report said.

The spike in prices in the past year marked the largest such increase since 2013, according to the CBS. Prices in Jerusalem were up 11.5% in the past year; in Haifa and the south, 9.9%; in Tel Aviv, 9%; and in the north, 8.6%.

According to the Finance Ministry report, investors have been most active in Tel Aviv, the most in-demand and expensive housing market in the country, where the average price for a four-room apartment reached over NIS 4,280,000 ($1,329,671) in Q2 2021, according to quarterly and annual research by the Alrov Institute for Real Estate Research at Tel Aviv University’s Coller School of Management. Earlier this month, Tel Aviv was ranked the most expensive city in the world to live in, but the study did not include housing.

The average cost of a four-room apartment in Israel was roughly NIS 2.2 million ($682,608), according to the Alrov Institute study, and the equity required is also very high. People looking to buy an apartment must come up with roughly NIS 840,000 ($261,140) in personal equity, according to the study for the second quarter (Q2) of 2021, up from NIS 760,000 ($236,269) in this year’s first quarter. This sum includes a down payment of at least 25%, according to Bank of Israel rules, closing expenses, taxes, lawyer fees, and other surrounding costs.

Governments have long promised to lower housing prices, which have climbed for over a decade. The sky-high costs have put homeownership out of the reach of many Israelis, weakening the middle class.

The reasons for the costs include restricted supply, planning, fiscal policies and the large number of investors buying up multiple housing units.

In October, the government unveiled a major housing plan for 2022-2025, aimed at rapidly increasing the supply of apartments in the hopes of reducing prices.

Finance Minister Avigdor Liberman said last month that the government would narrow the gap between supply and demand in three or four years.

But economists and experts have said that these new government plans were a “drop in the bucket” and do not address the underlying issues.

The statistics bureau also published data Wednesday on consumer goods. November saw consumer goods go up in price by 0.1%. In the past year, consumer goods have increased in cost by 2.5%, compared to 2.4% over the same period last year.

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