The effects of the corona virus on the real estate market - lowering the purchase tax and canceling the price for the tenant
After the closure of the corona, several important events took place in the real estate market, which should be taken into account: the lowering of the purchase tax on a second apartment, the bank interest rates and the price for the tenant.
All you need to know:
Lowering the purchase tax on a second apartment to 5% throughout the country
The Minister of Finance, Israel Katz, canceled the interim order of his predecessor Kahlon, and returned the purchase tax on a second apartment from 8% of the apartment's value to 5%.
the former finance minister, Moshe Kahlon, planned to exclude real estate investors from the residential apartment market, thereby lowering the demand curve and causing a price drop, just like you learn in introductory economics courses at the academy. In theory, it makes sense, in practice - less so. why? Because in the field of real estate, when the demand curve is lowered, the supply curve is also small: the contractors build according to demand. Therefore, when the investors are excluded from the market, there is a slowdown in construction starts by the contractors, and as a result, there is a decline in the supply curve.
Lowering the purchase tax will lead to liquidity and profit on the part of the contractors, which will make it easier for them to take bank and non-bank credit, and build for years to come.
Investors as an asset for tenants
It is important to note that these investors are also an asset to the apartment renting public, since they purchase apartments in less good areas, renovate and maintain the apartments, in most cases in a proper way, and in addition, increase the supply of apartments for rent.
The exclusion of investors (some of whom sought alternatives abroad) caused a loss of billions in revenue for the state.
In my humble opinion, the purchase tax, fundamentally, is unreasonable. It is not a tax on profit or income (a bit reminiscent of the taxes on vehicles).
Cancellation of price for the tenant
Minister of Housing, Jacob Litzman, canceled Kahlon's flagship program - price for the resident.
Here, too, the intention was good - to lower housing prices for young couples, by subsidizing the land component. Instead of contractors competing in the manager's tenders, the state came and removed its profit component from the land and held tenders, so that the contractors have to give a final apartment price, and by and large, who Whoever gives the most attractive price - wins the tender.
In practice, some of the young couples did enjoy a certain benefit, but this program was bound to have many failures. There are many young couples who are wealthy, and won tenders in attractive places, such as Atlit facing the sea, or Galil Yam in Herzliya, and won benefits of hundreds of thousands of shekels from the state.
This is lawlessness! This is the taxpayers' money. Imagine a situation where the daughter of one of Israel's richest people marries the man of her heart and they win an apartment with a tax payer's subsidy in Galilee, and purchase it for NIS 1.800.000! An apartment worth NIS 2.500.000 is unthinkable!
Damage to the apartment market from the second hand
A price plan for tenants also hurt the second-hand apartment market. The young couples were "educated" that they must start with a new apartment, which led to the fact that housing developers who wanted to advance to larger apartments, were stuck with second-hand apartments in their possession, without buyers.
With the loss of income as a result of the war on investors and the price per tenant, it was already possible to simply build thousands of public housing units for the poor, or channel the money to other projects for the welfare of the public.
The interest rates in the mortgage market today
In a conversation I had with Dima Postoboi from the "Mortgage Uniqueness" company, Dima brought up the following points:
- At the beginning of 2020 until the month of March, interest rates were at an unprecedented low, thanks in large part to the US trade war with China, which took investors out of the market and brought them back to invest in Israel. Thanks to this, the bank's funding costs fell and they could price the money more cheaply, and so it happened.
- When the corona entered our lives, in the middle of March, there was fear and uncertainty in the market, which created a sharp increase in interest rates as well as in the borrowing costs of the banks.
- About a month later, the Bank of Israel entered the picture, injected several hundreds of billions into the market and restored stability.
- Today the interest rates have returned to the same trend as it was at the beginning of 2020, that is - the most attractive interest rates in five years, for mortgage holders.
What do we learn from this?
The construction industry makes up about six percent of the gross domestic product (GDP) of the State of Israel. The real estate industry as a whole is one of the main growth engines of the economy.
In this period of a global economic crisis, there is no room for games and experiments, you have to do everything possible so that the economy provides its maximum output within the limits.
The finance and housing captains understand this very well, that is why they resorted to reducing the tax in order to bring back investors to invest in the country, and together with the abolition of the price for the tenant, the state will increase its income from the real estate industry (and it needs it very much).
Is it worth buying during this period?
In the short term - It is very worthwhile to buy an apartment these days, since the prices in the market are reasonable and reasonable, and as mentioned, the interest rates on the mortgage are also low. This may change in the coming months, due to the renewed entry of investors into the market, so the price of raising money will rise. Therefore, in the short term, it is very worthwhile.
In the long term - There is no point in saying too much: the market is too dynamic and too volatile to know. At the same time, it can be said that unlike investing in commercial real estate, investing in residential real estate has always proven itself to be solid and safe, even during the most difficult crises. Nevertheless, people will not live in forests and the population growth rate in Israel is one of the highest in the world (By 2024 the expectation is for 10 million inhabitants and by 2048 about 15 million (the CBS)).
Indeed, we are in a challenging period, but it must be remembered that precisely such periods are full of opportunities in the real estate market.
Most people continue to work as usual and the crisis certainly does not affect the salaried civil servants whose salary is guaranteed and increases over the years. The yield from Mandalan is good and stable and also exempt from tax (especially in Haifa where most rents do not reach the tax ceiling) and the landlord enjoys a "black" yield without taxation. The price for the tenant is, in my opinion, a bargain Equality in any case, the new buyers will no longer enjoy a large selection of apartments at cheap prices at a predetermined price per meter and will now be the "judges" of the brokers and sellers who will dictate the prices. It seems that the prices are on the way up, unless after decades of talk and promises of all the urban renewals in the west of the city They wish (these are plans for thousands of units) although right now with such a sleepy municipality it doesn't seem like it will happen in the current decade. But time will tell
Pampom Real Estate's article is ridiculous.
"It is very advisable to buy an apartment these days, since the prices in the market are reasonable and reasonable" - are you real, tell me???
So go buy apartments at bubble prices, what are you confusing our minds with? Only a financial suicide would buy now that the recession is on the doorstep and 50 thousand families are unable to repay their mortgage.
First of all, learn to speak respectfully and to the point.
Everything written is backed by facts. If you went out to the field to check, you would realize that there are prices that are really not bubble prices, of course it's easier to hack. Thanks for the concern, I also buy these days. In this period, you can find good opportunities, obviously there is a crisis about this in fact the article. In crises there are opportunities that normally do not exist.
You're right
You forgot that Ido is profiting from the movement in the property market, what did you want him to say to wait with the money for the next years? He also needs a living!
Very in-depth article, well done, important information.
Straight up Ido!