Are investors the real cause of high housing prices?
One possible avenue for holding down house prices is for the state to further rein in the profitability of investments in second or multiple homes.
Published 02:13 25.07.11Latest update 02:13 25.07.11
32,000 people have bought 3 to 10 homes since 2003
High housing prices have brought tens of thousands out to protest in Tel Aviv, complaining that they have been priced out of affordable homes. But for plenty of Israelis, the skyrocketing prices are a blessing.
Between 2003 and this year, 218,000 residences have been bought for investment purposes, a study by TheMarker shows. An investment home is defined as one bought by someone who already owns a home.
Most investment homes, 60%, have been bought by small investors. That is, more than 131,000 people have taken their savings and put it into housing as an investment, taking advantage of the low interest rates of recent years to finance some of the deal.
The other 40% have been bought by more serious investors. Some 32,000 people own three or more homes. Between 2003 and 2011, around 21,000 people have bought two additional homes for investment, and almost 8,000 have bought three or four.
About 2,600 have bought more than five homes over the past eight years. Some 256 people have purchased at least 10, with the average number for this group being 15.
But not all these people are necessarily in the property investment business. Some, for example, are lawyers who act as trustees for clients wishing to remain anonymous. This seems to have become quite common in recent months as many foreign residents, or Israelis with dual citizenship, have looked for ways around new and stricter tax rules for U.S. citizens.
Israelis have always bought apartments as investments, but an analysis of data from the State Revenues Administration shows that such investments have grown significantly over the past decade. In 2002, 22.4% of all housing purchases were for investment, and in 2010-2011 the figure was 30%.
The economic recovery since the second intifada and low interest rates have created a strong recovery in the housing industry - and in investment homes in particular. Housing sales reached 104,000 in 2010, up from 64,000 in 2002, a 60% increase. At the same time, purchases of investment homes surged by 120%.
The peak has passed
But it seems the peak is behind us. At the end of 2010, the Finance Ministry increased purchase taxes on investment homes by between 1.5% and 2%. This translates into NIS 15,000 more in taxes on the purchase of a residence worth NIS 1 million. This may not seem like much, but plenty more costs are involved, and in the first quarter of 2011 the percentage of homes bought for investment purposes fell to 25.8%, the lowest level since 2004.
The treasury's figures for the first three months of the year show not only a slowdown in purchases for investment purposes, but a jump in the number of homes sold that were originally bought as investments. Preliminary indicators for the second quarter show that this trend is is picking up.
One possible avenue for holding down prices is for the state to further rein in the profitability of investments in second or multiple homes. Tax increases have a big advantage over the alternatives - they can be done almost immediately, and the results will be felt quickly.
A major problem with reducing the number of investment homes is that most of them are rented out, so a reduction would lead to higher rental prices.
- This story is by: Ram Ozeri
Are investors the real cause of high housing prices? - Haaretz Daily Newspaper | Israel News
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ReplyDeleteTel Aviv Real Estate is a huge field. If you are looking for an apartment for sale in Tel Aviv you have a lot of work ahead of you :)
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