Real estate industry leaders laid into Finance Minister Yair Lapid’s plan to exempt some new home buyers from paying the 18 percent value-added tax on their homes, panning the plan as ineffectual, costly and counterproductive.

Speaking at the Ernst and Young Real Estate conference in Tel Aviv a day after Lapid’s plan gained approval from the Ministerial Committee for Legislative affairs, critic after critic derided the plan as populist.

“Without taking care of supply and infrastructure, there will be no drop in housing prices following the VAT law,” said Chen Shane, who heads the real estate division of Ernst and Young. In the first quarter of the year, housing starts were down 16% in comparison to the same period the previous year.

The plan, which will go into effect only in September should it pass the Knesset Finance Committee and the full Knesset, froze up the market when it was announced in March, he said, as potential buyers waited to see if they could get an 18% discount on their homes. When demand surges as they come rushing back to the market, it will allow contractors selling to everyone around the country to raise prices.

“I had hoped the VAT program would not go into effect,” said Eliezer Fishman, the controlling shareholder of the Fishman Group. “Now people will always look for more and more VAT benefits, and this thing will destroy Israel’s tax system,” he added, echoing one of the main criticisms lobbed at the plan by the Finance Ministry’s own former chief economist, Michael Sarel, who resigned in protest over the plan following its announcement.

Fishman argued that lowering taxes on the homebuilders would be better, and would help spur home building.

“Does anyone recall one operative step that was taken that already affected the local real estate market for the better?” asked Danny Haring, a real estate lawyer at Steinitz Haring Gurman. Data released by the Bureau of Central Statistics this week showed that housing prices have risen a jaw-dropping 95% since 2007, including an 8.2% rise since Lapid was sworn in as finance minister.

The law’s differentiation between those who have served in the IDF or National Service and those who haven’t has raised questions of legality.

Those who have not served can get the benefit only if the homes they purchase are below NIS 950,000, whereas those who have can buy up to NIS 1.6 million.

Jerusalem Municipality expected to ratify policy doubling property taxes on ‘ghost apartments’ Over 10,000 uninhabited residences have drained city’s economy, says Deputy Mayor Berkowitz • By DANIEL K. EISENBUD Following three years of intensive lobbying by Deputy Mayor Ofer Berkowitz (Jerusalem Awakening), a sweeping measure to double property taxes on the capital’s over 10,000 “ghost apartments” is expected to be approved next week, Berkowitz said Tuesday.

According to Berkowitz, the secondary residences, which are utilized for a fraction of the year, will be subject to the new tax beginning on January 1 if they are uninhabited for nine months of the year.

The phenomenon, typically propagated by wealthy Diaspora Jews, has markedly reduced the city’s housing supply, resulting in under-uninhabited neighborhoods and stalled housing and economic growth, he said.

Berkowitz, who is also chairman of the Jerusalem Municipality’s budget committee, said the capital has over 10,000 apartments that meet such criteria.

“Expensive housing impairs the ability of young people to stay in Jerusalem and build their homes and lives here,” he said. “We believe that some of these people will rent their apartments because of this decision.”

Berkowitz added that the new law will send a strong message to wealthy absentee owners.

“The message is very clear: Owning an apartment and not using it hurts the market, and if they get the message and rent out these units while they’re not here, that will help tremendously,” he said.

The deputy mayor emphasized that the law is not meant as a punitive measure so much as a means to encourage young Jerusalemites to stay in the city and stimulate an otherwise anemic economy.

“I’m not angry with these people and don’t want to penalize them – I really don’t think they are aware that they are hurting Jerusalem,” he said. “I just want to send the message that if we increase the number of apartments on the market, we will increase money coming into the city.”

Moreover, Berkowitz also recently submitted a measure to the Finance Ministry addressing the capital’s roughly 1,500 abandoned commercial buildings.

“On top of the 10,000 empty apartments in the capital, there are 1,500 abandoned buildings that we’re also trying to get back on the market,” he said. “We are proposing to make another law about this issue so we can improve the economy and add more jobs and culture.”

Present commercial property laws stipulate that once a building is declared abandoned, its owners are not required to pay property taxes for three years and can extend nonpayment for an additional five years.

“All this does is further drain the city’s economy,” said Berkowitz.

Capital residences used for only a fraction of the year are to be subject to a new tax. (Tim Hursley/Safdie Architects

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