At the beginning of 2022, everyone had great expectations about the Israeli real estate market. Would the record-breaking price increases in 2021 persist, or would the real estate market cool down a bit?
The major characteristic of 2022 was exorbitant price increases in the real estate market. Despite the government’s attempts to curb the increases, apartment prices increased by about 20% by the end of the year.
Interest Rate Hike
The Bank of Israel’s decision to increase the interest rate, in hopes this would moderate price increases, apparently came too late. We can expect to see the outcomes of the interest rate hike only in the upcoming year.
The increase to the economy’s interest rate, after a prolonged period of negligible interest rates, had a significant impact on the real estate market. For example, it led to an increase in mortgage holders’ monthly repayments and to an increase in entrepreneurs’ financing costs.
The market is beginning to feel the ramifications of the interest rate hike. For example, there is a downtrend in the market’s volume of activity as a result of financing difficulties. Entrepreneurs are encountering cash flow constraints, and mortgage holders are struggling to pay their monthly payments. These effects should create attractive business opportunities and eventually moderate the price increases in many sectors.
However, in the apartment rental market, we can expect to see rent hikes driven by a spike in demand. Many people will now have to rent apartments because they can no longer afford to purchase an apartment and pay mortgage payments.
Significant Developments in Real Estate Law
Purchase value will not include development expenses
In two appeals against appeals committee rulings, the Israeli Supreme Court upheld the Sharvit Rule.
The Sharvit Rule states as follows:
- If the development works were incomplete at the time of purchase, the development expenses are not deemed part of the purchase value. Purchase tax is not charged in respect thereof.
- If the contractor completed the development works prior to the purchase date, those works become an integral part of the real estate. Therefore, the development expenses are added to the purchase value and the purchase tax derives from this value.
- If the land was partially developed on the purchase date, the development expenses are partially included in the purchase value and in the purchase tax.
This ruling is helpful mainly to real estate development companies and land developers. Their purchase tax liabilities will be lower and they will also have more certainty about the tax costs of developing the real estate. Click to read more.
Good news for apartment buyers – significant amendments to the Sale Law (Apartments)
Amendments to the Sale Law (Apartments) will have a significant impact on the relations between sellers and buyers and on contractors’ apartment sale transactions. These amendments significantly limit the types of claims sellers (the development company) can raise to explain additional delays beyond the grace period, to avoid paying compensation for apartment delivery delays. Click to read more.
Maximum Exemption from Land Appreciation Tax
The Real Estate Tax Appeals Committee disagreed with the Israel Tax Authority on a question of entitlement to an exemption from land appreciation tax at the full sum prescribed by law. The case at hand refers to the sale of a single luxury apartment by several sellers. Click to read more.
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Maya Zisser is a partner in Barne Jaffa Lande‘s Real Estate Department.