Legal Ground: Priced out of the market

Is the impact of foreign buyers on the Israeli property market as formidable as is sometimes imagined?

dr  haim katz 88224 (photo credit: )
dr haim katz 88224
(photo credit: )
Is the impact of foreign buyers on the Israeli property market as formidable as is sometimes imagined? If you are among those concerned, you are in good company. The perception is beginning to gain wide currency. Even David Witsthum voiced the very same concern to me on his mainstream midnight current affairs Channel 1 TV show recently. "Isn't it a fact that Jerusalem is becoming a ghost town where only the rich can live, and apartments are left empty of their wealthy purchasers, save for one or two weekends?," he asked. This issue has also been brought to public debate by a new organization named Young Adults In Jerusalem. They lobby for affordable housing and express their fear that builders catering exclusively to foreigners raise market prices, thus squeezing out native born Israelis. Complaints were raised at a recent meeting of this group that more than a dozen projects in central Jerusalem were being constructed for foreign residents while no construction projects were being started for local young residents. Some similar groups have actually made a correlation between apartment purchases in Jerusalem by foreigners and the fact that people are leaving the city. My answer to Mr. Witzthum and to others voicing the same concern is that this is beginning to don the proportions of a larger-than-life urban legend. It's worth looking closely at the facts. During the last year some 5,200 apartments were bought by foreign citizens. A newly-published government study shows that foreign owned apartments were purchased, on average, for NIS 1.2 million. Now that's really not so much, when you think about it. This number of purchases is less than 4 percent of total yearly apartment transactions, for an average year. It is true that wealthy individuals, world-over, do like to own apartments in Manhattan, Paris, London and Jerusalem, even if only to use them occasionally. And it is true that these individuals do drive up the prices in those local housing markets. It is also a fact that some small areas in the city of Jerusalem (for example David's City Ir David) become ghost towns for long stretches of the year. But Ir David was built away from the city center for an exclusive selection of foreign purchasers. Where apartments are being purchased in the city center, one can, by taking a short evening stroll at any time of the year, hear many foreign languages as well as Hebrew, but the cafés, the shops and streets are bustling with people and are full of life. No-one has raised the proposition that Park Avenue should be regulated for the less affluent, and that young people who wish to live in historically trendy Mayfair, London should be supported in this wish by city or state regulations excluding certain classes of purchasers. Nonetheless, the youths' gripes are justified, in the sense that there are no special developments for their population group. This, however, should not be linked, artificially, to a populist let's-bash-the-rich-foreigners campaign. It might play well in the political arena but it doesn't make sense in terms of aliyah, the goals of this country nor of simple macro-economics. With every purchase, national and city taxes are paid and local consumption increases, boosting the economy of cities like Jerusalem. There are many other side benefits, not least of which is that the local level of service rises to American and European standards, benefiting Israelis, veterans and newcomers alike. There is no vacuum. Most of these apartments, in these prime areas, are used -if not always by their purchasers, by their sons, daughters, friends, relatives and guests. These, in turn, deepen their relationship with Israelis and state of Israel and quite a few of them remain to study; and often to live here. I often point out that when you visit cafes and restaurants on trendy Emek Refaim, or even if you go to the popular synagogues attended by hundreds in these areas, like the Shira Hadasha community, the older members and visitors speak a foreign language; English, French or Italian, but their children speak Ivrit. Furthermore, if you step out of the ring of neighborhoods in the trendy city center, prices of housing in the outlying neighborhoods have not shot up and in some cases have actually gone down. Anyhow, the main driver of housing prices throughout the entire housing market is not the tiny percentage of foreign purchased homes but rather the heavy hand of government through taxation. A recent study made for the Builders Association shows that taxes on new apartments push up their prices by 44%.(!) If there is a place for social engineering by reducing housing prices in our increasingly wealthy country, it should be done by REDUCING taxes. And this is no longer wishful thinking. The trend in tax-reduction was initiated by previous governments under the leadership of Benyamin Netanyahu, and continued by successive governments of Sharon and the present administration. We are now seeing this trend applied directly to property taxes. Just weeks ago the government, in an attempt to directly address the issue of young couples and the less affluent sectors, abolished Acquisition Tax on the first NIS 925,000 of an apartment purchase. This is the highest tax break in the property field in many years and will enable young couples to leap the hurdle of a first dwelling, and address some of the social concerns raised by the Young Adults and similar groups. While this overdue social reform is being implemented, let us warmly welcome Jews from abroad who choose to buy a home in our midst, and who by doing so affirm and contribute to a socially and economically vibrant Israel. The author is a senior partner with with Abraham Neeman Law Offices, one of the largest real estate law firms in Israel.