The increase in purchase tax for real estate investors propelled the mortgage market to a new record in June. According to banking system estimates, the volume of new mortgages taken over the past month totaled NIS 6.5 billion, a record, and 40% more than the monthly average in the past year. The previous record of NIS 5.8 billion in August 2012 was also affected by regulatory change - an increase in VAT in the following month, which made new apartments more expensive and caused many deals to be brought forward.
The exceptional market figures were stimulated by the purchase tax rise recently imposed by Minister of Finance Moshe Kahlon, who decided that the purchase tax would be 8% on an apartment worth up to NIS 4.8 million and 10% on an apartment worth more than NIS 4.8 million. The tax hike is aimed at reducing activity in the market by investors, thereby depressing demand until Kahlon implements measures aimed at increasing supply in the housing market.
The tax hike was originally emant to take effect at the beginning of July, but the Ministry of Finance saw how investors were running after apartments in order to buy them before the tax hike took effect. It was eventually decided to bring the tax hike forward, and it became effective last week. Banking system sources, however, said that the purchase tax hike would not cool off the mortgage market in the coming months. "Many investors hurried to sign deals before the tax was raised, but they will finish the process of taking a mortgage only in the coming months, and it therefore appears that the mortgage market figures will also be strong in July-September," a senior banking source said.
Banking sources added that on the other hand, activity by those moving up-market and first time apartment buyers is expected to decline in the coming months, until the prices in the buyer fixed price program now being worked on at the Ministries of Finance and Construction and Housing become clear. "If first apartment buyers believe in Kahlon and his plans, they will probably slow down their activity in the coming months. Still, given the strong figures in the mortgage market in the first half of the year, it appears that 2015 will be a record year in the sector," a mortgage sector source said.
Mortgages taking in January-June 2015 totaled almost NIS 32 billion.
Another factor that has been affecting the mortgage market is the slide in the bond market. The falls in this market affected prices in the mortgage market, and brought up prices mainly in the variable interest rate mortgages, in which the interest rate anchor is the yields in the bonds market, but also for fixed interest rate mortgages. The rise in the mortgage interest rate for the various types of mortgages reached 1%, a significant increase in a market with an average interest rate of 2-3%. Nevertheless, apartment buyers, and especially investors, were not deterred, and pushed the market up to new peaks.
Published by Globes [online], Israel business news - www.globes-online.com - on June 28, 2015
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