The Knesset Finance Committee today approved a reduction in the betterment tax paid by owners of private land put up for sale. This benefit is designed to encourage private landowners - mainly in areas with strong demand for real estate - to sell their land in order to benefit from reduced taxation.
The tax rate will be a uniform 25% of the value of a deal involving land for which a building plan exists that allows construction on the land of at least eight housing units, for a set period. The current betterment tax rates are higher.
The benefit, which was approved as an administrative order for 2016-2018 in the framework of the Economic Arrangements bill, is designed to encourage the use of private land, which accounts for much of Israel's reserves of residential land.
Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism) welcomed the measure, saying that, like other individual plans, "This measure must be part of an overall package of measures for making housing cheaper." Gafni added that the Committee "would push any measure for progress towards a solution for the housing crisis."
The determining period for obtaining the benefit varies from 42 to 48 months, with the benefit being awarded according to the proportion of construction completed. For example if land is sold for construction of 10 buildings, 10% pf the benefit will be given after the first building is completed, and so on, instead of making the benefit contingent on 80% of the project, as the Ministry of Finance initially wanted. The full benefit depends on meeting the target within the stipulated period, at the demand of Gafni, who said, "Our interest is to given the benefit, and to eliminate difficulties in obtaining it, in order to encourage people to sell land."
In the case of a building plan for 1,000 or more apartments, the sale is to the contractor for the engineering work, and the land constitutes a business inventory for the contractor. There is no restriction on the construction period for 1,000 or more apartments for purposes of obtaining the benefit. The benefit also includes the sale of land purchased between April 1, 1961 and November 6, 2001, when the betterment tax was 43%. The benefit will also apply to combination deals.
The Finance Committee also approved a lower mortgage interest rate than the one currently granted by the Ministry of Construction and Housing. The benefit will be granted to those declared eligible by the Ministry of Construction and Housing. Under the bill approved by the Finance Committee, the interest rate for those eligible who have no housing, and who are about to purchase their first apartment, will be 2.5%, instead of the current 3%. The Finance Committee members asserted that the interest rate for those eligible should be slightly reduced, because the current mortgage interest rate was very low, and those recognized by the Ministry of Construction and Housing as eligible, who are without housing, should be given a lower rate. These are people whom no bank would grant a loan. The benefit will cost NIS 170 million.
"Both of these decisions are excellent and correct," said Real Estate Appraisers Association in Israel chairman Ohad Danus. "The administrative order will make it possible to release private land for residential construction currently held in deep freeze, due to the high taxes. Lowering the interest rate on mortgages for those eligible will result in those loans finally being utilized. Keep in mind that up until now, all the government solution for housing dealt mostly with keeping down demand, and with state-owned land. No solution was provided for entire cities with high proportions of privately owned land, such as Rehovot, Netanya, Kiryat Ono, and others. Any solution that deals with the supply side is welcome, and it is regrettable that no more dramatic decision was taken today about reimbursement of property tax on land available for construction a decision that certainly would have changed the decision of those landowners who do not wish to sell, and would have convinced them to start construction on the lots that they own."
Published by Globes [online], Israel business news - www.globes-online.com - on November 8, 2015
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