The step taken in 2017 to curb pricing has failed consistently, so why does the government insist on continuing it, despite the losses to the economy
Introduction: The Cost of Blaming Investors
Israel recently extended the 8% purchase tax on real estate for investors for another two years, a decision framed as a measure to curb soaring housing prices. While this policy appeases younger generations frustrated with unaffordable housing, it raises critical questions about its economic consequences. Are foreign investors the real problem—or are they merely scapegoats for political expediency?
1. Direct Economic Losses from Deterring Foreign Investors
Foreign real estate investors bring more than just cash for property purchases. They contribute significantly to Israel’s economy:
Revenue from Property Sales:
A foreign investor purchasing a $2 million property in Tel Aviv generates not only tax revenue but also supports real estate agents, lawyers, and appraisers.
Ongoing Maintenance Costs:
Owners of Israeli properties spend on local services—cleaning, maintenance, renovations, and landscaping.
Tax Revenue:
Foreign investors pay annual property taxes, contributing to municipal budgets.
By setting the purchase tax at 8%, many investors are discouraged, reducing these direct inflows. For every luxury apartment or villa not purchased, a ripple effect is felt across sectors.
2. Indirect Losses: Tourism and Business Links
Foreign investors are often repeat visitors:
Boosting Tourism:
Investors are more likely to visit Israel frequently if they own property, spending on flights, hotels (during renovations), restaurants, and entertainment.
Business Investments:
Real estate ownership often leads to increased business ties. A property investment can be a gateway to exploring Israeli innovation and startups.
Countries like Spain and Portugal have leveraged real estate as a strategic entry point for broader economic relationships, offering tax incentives rather than deterrents.
3. Other Countries' Approaches to Real Estate Investment
While Israel deters foreign buyers, other countries actively court them:
Portugal:
The Golden Visa program encourages foreign buyers by offering residency in exchange for property investments, fueling economic growth.
Dubai:
With no property taxes and low transaction costs, Dubai attracts billions in real estate investments annually, driving its tourism and hospitality sectors.
United States:
Despite high real estate prices, the U.S. imposes moderate tax burdens on foreign buyers, encouraging sustained demand.
By contrast, Israel’s punitive tax rate isolates it from the global competition for capital.
4. Is It Really About Housing Prices?
The 8% tax is sold as a means to curb housing price inflation and increase affordability for young Israelis. However:
Investors Aren’t the Primary Buyers in Most Markets:
Data suggests that a small percentage of total transactions involve foreign investors, and their purchases are concentrated in luxury markets, which don’t directly affect first-time homebuyers.
Structural Supply Issues Are Ignored:
High housing prices stem from chronic supply shortages, bureaucratic delays, and restrictive zoning—not investor demand.
The focus on investors as the culprit shifts attention from addressing these systemic issues.
5. The Political Dimension
Politically, targeting investors is a convenient narrative:
Young Voters’ Frustration:
With young people increasingly disillusioned by high housing prices, the government needs a visible target. By taxing investors, it signals action without addressing root causes.
Populism vs. Economic Strategy:
In times of political instability, populist policies often take precedence over long-term economic strategy.
6. A Time When Israel Needs Investments
In the current geopolitical and economic climate, Israel should be seeking investments, not deterring them:
Global Economic Slowdowns:
Attracting foreign capital is critical for economic stability and growth.
Brand Israel:
By alienating potential investors, Israel risks diminishing its reputation as a global destination for economic opportunity.
Conclusion: Rethink the 8% Tax
While politically convenient, Israel’s punitive tax on real estate investors is shortsighted. The policy sacrifices direct and indirect economic benefits, all while failing to address the structural causes of high housing prices. Instead, Israel should be encouraging investment by lowering barriers, fostering goodwill with foreign investors, and tackling the real issues in the housing market.
The time to act is now. Israel must choose whether to be a global hub for investment or a country that drives opportunity away with populist policies. The future of its economy depends on it.
Comments