"There are no magical solutions in the Israeli real estate market. The real estate market in Israel is complicated and difficult, and changes in it occur slowly, including when there is a downtrend in prices, and there have been such periods. For many years, and from time to time, we have experienced irrelevant efforts and proposals with an element of demagoguery, in which there was no solution for the problem. The 0% VAT program, which aroused strong opposition, including from the professional echelon in your department, was one such proposal, and the proposal recently submitted for public comment is another," stated Real Estate Appraisers Association in Israel chairman Ohad Danos in an official response to the Ministry of Finance budget department and Minister of Finance Moshe Kahlon, referring to the new plan to tax owners of three or more housing units. According to the Real Estate Appraisers Association in Israel, there are a number of problems with the bill, which is included in the Economic Arrangements bill, including concern that the proposal could cause rents to rise by reducing the stock of rental housing. It is also being asserted that the proposal suffers from "an extreme lack of equality and disproportionality.
"The proposed bill is extremely unequal," the letter states. "It does nothing to narrow gaps in Israeli society. The owner of a housing unit worth NIS 5 million does not pay one shekel in tax, while the owner of three housing units with an aggregate value of NIS 3 million pays NIS 20,000 a year. The owner of three housing units with an aggregate value of NIS 30 million pays NIS 18,000 a year, while the owner of three housing units with an aggregate value of NIS 5.4 million also pays NIS 18,000 a year. The proposed bill is disproportionate. It does not distinguish between those leasing the apartment and those who do not. There are many and diverse reasons why middle class parents prefer to leave property in their own names, while their children use the property. The most common reason is the wish to ensure their future pensions, and those who have already reached retirement. What the bill will do, assuming that it becomes law, is to cause the actual transfer of properties to the children, with all that implies. In our humble opinion, the state should not intervene and jeopardize middle class parents who have decided to invest their pension money in which was until recently considered a patriotic purpose. What is the alternative? That the money invested in a third housing unit be moved to overseas investments?
In his letter, Danos lists other reasons why the bill is bad for the current rental market. "The main reason for the outbreak of social protest in 2011 was the booming rental market. Our young children, those who could not dream of buying an apartment at 2011 prices either, saw how rents constantly rose, thereby closing their life horizon in Israel.
"Their rising frustration and despair drove them into the streets. Rents have risen since then, and we are also in a renters' market now. In this situation, any regulatory change plays into the hands of the property owners by providing them with ammunition for another rise… Owners of three or more housing units will not be the only ones to raise rents on the properties they own; everyone will try it. That is how a perfect market works, and there is no reason for it to be different this time. The most vulnerable group in Israel - the renters - will suffer again. At the same time, if the purpose of the law is achieved, the result will be that tens of thousands of housing units will be put up for sale, and the supply of rental housing will drop by at least 10%. As long as the state does not offer those renters an alternative solution, it is obvious that those not affected by the law (owners of two housing units who put one of them up for rent) will increase the rent as a result of growing demand."
Later in his letter, Danos also argues that the proposal could have a negative effect on outlying areas, adding that the Real Estate Appraisers Association in Israel position is that the bill does not address the housing crisis at all: "While the property owners in high-demand areas will roll the higher tax onto the renters, in the outlying regions, where the demand for housing is lower, there is a risk that approval of the bill will flood the market with properties, thereby detracting from the value of the residents' properties.
"The bill will therefore have the opposite result from the declared one; it will widen the gaps between the outlying areas and the central region… The proposed bill does not address the housing crisis, either directly or indirectly, for the simple reason that if it passes, not a single housing unit will be added to the Israeli real estate market. The only thing likely to occur in theory is that a renter will give way to a new owner, who will certainly be economically better off than he is."
Danos concludes his letter as follows: "In your explanation of the bill, you wrote… 'This tax will contribute to a more correct income distribution in the economy, and reduce inequality, and will also constitute an incentive for property owners to sell their property, which will increase the supply of housing units in the secondary housing market and reduce prices.' This sentence contains all the paradoxes and misunderstandings of the measure… In view of the above, I call on you to reconsider your position, and to remove the proposal from the budget bill."
Published by Globes [online], Israel business news - www.globes-online.com - on August 7, 2016
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