Change in tax codes – will it really help or hurt homebuyers?

The new finance minister, Yair Lapid has announced a change in the tax rate on the purchase of apartments to alleviate the difficulty “for young couples”.  The new tax rates announced that will go into effect on May 5th are that a home costing up 1.47 million NIS will not be subject to purchase tax. From May 5  a purchase of a home of any price for a first time buyer only will be a flat 3.5% for any priced home costing more than 1.24 million.
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The plan is designed to help only first time home buyers and to finance it by creating a betterment tax for those buying a larger or more expensive home even if it is their primary residence.

The current maximum purchase tax rate is 7%, on purchases of homes for investment costing NIS 3.26 million or more. On May 6, this rate will be lowered to 5%, and the threshold will be lowered to NIS 1.05 million. In 2011-2012 a tax freedom for the sale of an investment property (any home other than your principal dwelling) was temporarily offered to entice those holding investment properties to sell in order to create inventory which would help lower prices.

This new code primarily attempts to help the new home buyer. The government’s plan to finance this new tax plan will place a new burden and revenues on those who are moving up the housing ladder on a larger or luxury home, in essence the 2nd home purchase. Sale of investment properties or second homes will no longer be exempted from sales tax.

It is this writer’s opinion that the government has succeeded in its stated goal in late 2010 to forcibly burst any development of a housing bubble by increasing the minimum downpayment to 40% from a former more open market where the bank could opt for as low as 10% down to qualified customers. The effect of all of these measures has been to overall depress the housing market and impede first time home buyers who would be far more assisted with a low downpayment than a release from a purchase tax which might have formerly amounted to only a few thousand US$.

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