Israel’s luxury home prices falling
Market attributes slowdown to measures imposed by Kahlon
“The fall in housing prices is beginning with the drop in prices we are already seeing for luxury housing, because that’s where it begins,” Minister of Construction and Housing Yoav Galant said at last week’s annual Globes Real Estate Conference. A special survey published in Globes in cooperation with a real estate website of the 30 leading luxury deals in 2016 leaves no room for doubt. The past year was more modest in the volume of expensive deals, in contrast to 2015, which featured deals exceeding NIS 50 million and a larger number of deals in excess of NIS 20 million.
There was one NIS 58.6 million deal and another deal of over NIS 50 million in the Meier on Rothschild tower in 2015, while no deal in 2016 reached NIS 50 million, or even NIS 45 million. The decline is even more stark in comparison with 2014, when deals were posted for a record NIS 110 million in the 10 Herbert Samuel project, and Check Point Software Technologies Ltd. cofounder Gil Shwed bought a house in the Neot Afeka neighborhood of Tel Aviv for NIS 130 million. It looks as if in 2017, the Israel Tax Authority can only dream of the tax revenue generated by such deals.
The real estate market attributes the slowdown to the measures imposed on investors by Minister of Finance Moshe Kahlon in late 2015, which included raising the purchase tax from 5% to 8-10%, in addition to the elimination of the exemption from betterment tax that took effect in 2014. These measures made it less worthwhile for property owners to sell them in order to make a profit. In addition, discussion began in 2016 about Kahlon’s plan to impose a tax on owners of three or more housing units, which is also having an effect on the market.
Marketers of luxury housing mostly dislike Kahlon’s measures against investors, who it appears thought twice in 2016 about whether to invest in luxury real estate and pay an additional 10% of the amount of the deal in purchase tax. However, according to Yigal Zemach, CEO of Berggruen Residential, the developer of the Meier on Rothschild project, which featured the most expensive deals in both 2015 and 2016, “Just before the measures became effective in mid-2015, we closed huge deals in the project, and after they went into effect, we saw clearly that the type of customer had changed.
“Those looking to make a quick profit by buying and selling after occupancy no longer came. For us, that was great, although they didn’t realize it. In effect, Kahlon stripped the market of customers who were not end-customers. After that, only people who wanted to live in the project bought.”
According to Zemach, all 148 apartments in the tower were sold, except for a penthouse offered for sale for NIS 75 million.
According to real estate broker Rafi Kalina, who brokered the above-mentioned deal, “It’s true that the luxury market has been affected by the measures introduced, including the 10% added purchase tax, a 25% betterment tax on the profit, paid by the seller, and betterment fees paid by buyers with no historic construction rights. Keep in mind, however, that even properties near the waterline, which are usually purchased by investors or foreign residents, take time to sell, and in the end are bought by special customers.
“Since the Tzahala neighborhood features buyers who want to live in it and are not investors, it is not particularly affected by the measures imposed on investors.”
In late 2016, the Ministry of Finance chief economist published a survey that covered the purchase of homes in 2016 in comparison with previous years. The survey shows that 1,566 housing units were purchased by foreign residents in January-August 2016. In comparison with the corresponding periods in the 21st century, this is the smallest number of purchases by foreign residents since 2003. In Tel Aviv, for example, according to the survey, foreign residents bought 297 homes in January-August 2016, 36% fewer than in the corresponding period in 2015.