BOI: New Taxes Won’t Discourage Property Sales

YERUSHALAYIM -
Construction of new residential buildings in central Tel Aviv. Photo by Miriam Alster/FLASH90
Construction of new residential buildings in central Tel Aviv. (Miriam Alster/Flash90)

Taxation is one way to discourage consumption, but a new poll by the Bank of Israel says that Israelis are not discouraged easily. The study shows that even if the government were to raise the level of purchase taxes on property by 3.5 percent – essentially doubling it for some buyers – it would have zero impact on the number of sales or their average prices.

Currently, real estate property tax surcharges stand at levels between 3.5 percent and 8 percent of the cost of a piece of property, the economic level of the buyer, and the buyer’s and seller’s income. The study investigated sales that took place between 2008 and 2014, examining deals and, using big data analysis, determining the maximum amount of taxes buyers were likely to pay. Combined with polling of thousands of people, the study determined that even for deals where the maximum tax was already in force, buyers were willing to pay 3.5 percent in purchase tax to make a deal.

In the study, the Bank said that “small changes in the tax levels of property costs have very little impact on the willingness of individuals to purchase properties. The changes in property tax are seen as peripheral, in line with influences on decision making such as public transportation, education facilities, quality of life, and others.”

The study said that changing the purchase tax by such a large amount at a single time was unlikely, so looking at taxes as a method of calming down home prices was probably not going to work in the long term.