Apt. Owners Not Afraid of New Kachlon Tax – But Renters Are

An apartment building under construction in Har Homa, Tuesday. (REUTERS/Ronen Zvulun)
An apartment building under construction in Har Choma, Yerushalayim. (Reuters/Ronen Zvulun)

If the objective of Israel Finance Minister Moshe Kachlon in imposing a nearly NIS 20,000 a year tax on owners of three or more apartments was to discourage investments in real estate, the plan is not going to work, according to a report on Channel Two. Israelis who own multiple apartments said that they would not be deterred from buying more apartments, and expressed confidence that they would be able to pass off the tax increase onto renters, considering the demand for rentals, especially in the center of the country.

The tax, which Finance Minister Moshe Kachlon is planning to pass as part of the Arrangements Law, which is set to be presented to MKs along with the state budget, will cost Israelis who own three or more homes as much as NIS 18,000 a year. The rule is expected to affect 50,000 people. The value of the home will be determined by a government-certified assessor, based on home value data supplied by the Central Bureau of Statistics for each geographical area. The Arrangements Law was approved by the government last Friday, and will be brought up for a Knesset vote next month.

According to one pensioner who owns three homes and is in the market for a fourth, the new edict is not affecting his purchase plans. “I haven’t decided what to do yet,” said the man, who said that he preferred investments in real estate over other investments because the returns were much higher. “I decided to invest in real estate so as not to be a burden on my children. If I had left it in the bank I would not have made any money. If I do decide or not to buy another apartment it will have nothing to do with Kachlon’s tax.”

In fact, he said he doesn’t expect to have to pay the tax at all. “There are a lot of ways around this – I could transfer control of one of the apartments to one of my children, so on paper we would both own two homes instead of my owning three and they owning one. This way we would be exempt from the tax.” Meanwhile, he expects rents to rise as homeowners transfer the burden of payment to renters – and he, too, will raise rent, pocketing the “tax” which he will not have to pay.

Meanwhile, renters expressed real fear that rents would rise dramatically. One renter told Channel Two that that is exactly what his landlord told him – and in fact, the rent is slated to rise by hundreds of shekels when the lease goes up for renewal before 1 January, when the tax is supposed to be implemented, as owners prepare for the tax increase.

The renter stressed that his landlord was generally very fair, and the rent on the Tel Aviv apartment he lived in was not relatively high, and he had very good relations with the landlord. Nevertheless, the landlord told him, business is business. “I have to see what we are going to do about this. If rents go up around town, as they are likely to, my choices are going to be very limited,” said the renter. “We go through this every year, fearing that the landlord may raise the rent. Now apparently we have something to really be afraid of.”

Speaking last week, Amir Levy, director of budgets in the Finance Ministry said he did not believe the new law would affect rents. Levy said that the Ministry had done an in-depth analysis of the matter before proposing the tax, and had determined that rents would not be raised en masse as a result of the tax’s imposition.

Economists have expressed concern that the tax will do nothing but raise the cost of rents, as homeowners slough off the new expenses onto renters. However, Kachlon has told advisers that there are enough “second apartments” that will not be taxed that renters can take advantage of, Globes reported. According to Ohad Danos, chairman of the Israel Real Estate Appraisers Association, “in the end, the increase will be dumped on renters, and even those who have only one extra apartment and will not be taxed will surely take advantage of the situation to increase their rents. This a populistic, Bolshevik-style rule that would have been appropriate to the Israel of the 1960s.” The only benefit of the law, he said, “will be to add NIS 800 million to the public coffers.”

Levy said that this was not the case at all. “The maximum number of rental apartments to be affected by this law is 80,000, out of a total of 650,000 on the market,” he told Globes. “In addition, those who will have to pay the tax can well afford it. The average age of those affected is 56, with a monthly income of NIS 46,000.” Given the competition for renters and the large number of options available, the Ministry does not see the tax as an opportunity for a general increase in rents, he added.