Gov’t seeks to rein in housing prices

Tax on capital gains made from sales of land to be cut from 45% to 20%; govt. hopes it will encourage sale of 1.9 million dunams of private land.

November 15, 2010 22:59
3 minute read.
Housing in the Galilee.

galilee housing 248. (photo credit: Courtesy)

Prime Minister Binyamin Netanyahu on Monday announced a set of short-term measures to boost the supply in housing and stem the surge in property prices, which is expected to help young couples and families to buy a first home.

“Over the past five years real-estate prices have been on the rise, which is causing purchase difficulties for the population in general and young couples in particular,” Netanyahu said at a press conference in Jerusalem. “We are faced with a housing supply problem and a sharp surge in property prices in the market, which necessitates an immediate response through the intervention of short-term measures.”

One of the three measures aimed at speeding up the process of construction and the building of new neighborhoods is a reduction in the betterment tax on land from the maximum rate of 45 percent to 20% for a limited period starting in 2011. The government hopes the measure will encourage the release and sale of some of the 1.9 million dunams of privately held land and boost the development and supply of homes.

A land betterment tax is levied on capital gains made from the sale of land. Today, a tax rate of up to 45% is imposed on real estate, if its value increased due to changes in building rights or upon re-zoning. The tax is payable when a building permit is issued or upon sale of the asset.

Land owners who bought land between 1961 and 2001 are liable to pay tax on land betterment at a maximum rate of 45%. Betterment tax on land bought after 2001 is 20%. However, since a large part of land was purchased before 2001, owners have been very slow in releasing it. That is one of the reasons for the shortage of housing, which is boosting property prices due to high demand. The reduction on the land betterment tax announced Monday will also apply to land that was purchased before 2001.

Secondly, contractors will be eligible for a 15% rebate on the price of land tenders issued by the Israel Lands Administration if they finish construction of at least 80% of apartments in a project in a period of time not exceeding 30 months.

The third measure entails regulatory easing and assistance to enable city mayors and local authority heads to advance and speed up development plans and permits for the building of apartments and public spaces for new neighborhoods, schools, kindergartens and parks.

Building and Contractors Association president Nissim Bublil welcomed the new measures but said contractors would have a hard time finishing construction within 30 months due to a shortage of professional workers and lengthy bureaucratic procedures.

“The measures are a step in the right direction regarding the discount on the betterment tax and the assistance to the local authorities,” he said. “But contractors will have difficulties in finishing construction within 30 months to get the 15% rebate on the price of land, considering that today the process of receiving a construction permit takes more than a year and there are not enough professional workers. Today the sector employs only 6,700 foreign workers. Without enough workers we cannot shorten construction time.”

Netanyahu said the measures, which were formulated together with Finance Minister Yuval Steinitz, Construction and Housing Minister Ariel Attias and Bank of Israel Governor Stanley Fischer, were only a first step to calm the booming real-estate market, and more steps would be proposed in the coming weeks.

“This is only the beginning,” he said. “For now, we are presenting three measures, but we are considering additional measures in the field of taxation.”

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