Property investing in Israel: a tax refresher

Although Israel imposes taxes on real-estate income and gains, there are numerous exemptions and exceptions. You will need to consider not only income tax but also acquisition taxes, VAT, capital-gains tax and inheritance tax.

Acquiring the asset

Israel imposes an acquisition tax on Israeli real-estate interests of up to 5% percent of the asset. You need to add to that the cost of the lawyer. Typical cost is around 1.5% + VAT (currently at 16%), but you should be able to negotiate this down significantly for big transactions.

Renting out

Private landlords in Israel pay no Israeli income tax if total monthly rental income is less than ₪4,680; they lose ₪1 of exemption for every extra shekel they make above that figure, but they have two more options:

1. Israeli tax at 10% on gross rental income of the previous calendar year if paid by the end of January;
2. Israeli tax at regular rates on rental income net of expenses and including depreciation of the building cost and any mortgage interest.

Landlords of commercial property and companies get no exemptions; they pay regular tax on rent. Individuals pay tax on rent net of expenses and depreciation at rates of 30% to 45% plus National Insurance Institute payments at various rates. Companies generally pay company tax on rent net of expenses and depreciation at rates of 25%. Dividends are taxed at rates ranging up to 25%, subject to any double tax treaty.

Depreciation is on the building element, not on the land. The depreciation rates are 2% of cost for a good-quality building, otherwise 4%. If the building element is unknown, you are allowed to assume it is two-thirds of the overall cost. Each asset is depreciated separately on a “straight line” basis (percentage of cost, not written down balance). Regular Israeli individual tax rates currently go up to 45%. NII payments also apply at various rates but are minimal for non-residents.

Selling

Israel imposes “land appreciation tax” (LAT) on capital gains from Israeli real estate. The Land Registry (Tabu – a Turkish word) checks that you don’t forget. Companies generally pay 25% tax and individuals pay 20% if the real-estate asset was acquired after November 7, 2001.

Individuals are exempt from LAT on Israeli home sales in many cases, including: (1) After an 18-month waiting period following a previous exempt sale if they only own one home in Israel; (2) after a four-year waiting period following a previous exempt sale if they own more than one home in Israel. It doesn’t matter whether the seller is an Israeli resident or not, or what other properties the seller has outside Israel. For assets acquired in 1961 or earlier, special reduced tax rates may apply.

Financing

Financing the asset is a good way to reduce your tax liability since mortgage is a deductible expense. Note that 16% VAT and 25%-plus withholding tax usually apply to interest unless it is paid to an Israeli financial institution. With most banks you can borrow in ILS, USD or EUR either fixed or floating. While LTV (Loan to Value) requirements are more stringent now (usually banks will require a 40% deposit) rates are still quite attractive.

It's important to shop around as prices vary greatly from one institution to the next and depending on your credit profile and the maturity of the loan, you can get rates as low as LIBOR + 1.5%. It's also worth looking at the private banking services that the institution offers as typical experience in a retail branch is not something you might look forward to...

More pictures of Elhanan Street widening project

Along with the White City Residence construction project comes a renovation and enlargement of Elhanan Street to make it a continuation of the Rothschild avenue all the way to the sea. We showed a video presentation a while back. Here are a few more renders, some now obsolete though...

Source Tapuz.co.il.

Tel Aviv 1909 - 2009

Real interest rates to stay negative in the coming months

Bank Leumi says in its latest macroeconomic survey that the Bank of Israel will keep the interest rate unchanged for the coming months, unless home prices continue to rise. The Bank of Israel kept the interest rate for September unchanged at 1.75%, even though Central Bureau of Statistics figures show that apartment prices are still rising. The Bank of Israel cited the slowdown in the US economy, which is liable to affect Israeli exports and the economy as a whole. In addition, 12-month inflation expectations have fallen below the 3% inflation target ceiling, enable the central bank to defer more interest rate hikes.

"We believe that the interest rate in the coming months will be kept at its current level, which means a negative real interest rate," says Bank Leumi. "The factor that could bring forward a rise in the interest rate is a further rise in apartment prices, a factor that the Bank of Israel said in its announcement that it will pay particular attention to."

As for the boiling hot real estate market, Bank Leumi says, "July was characterized by a further reduction in the number of privately built apartments sold, alongside a modest drop in the inventory of new homes available for sale." It adds that inventory levels point to over-demand, which leads to continued price rises.

Bank Leumi did not ignore the Bank of Israel's special focus on the real estate market, saying that the interest rate and other monetary tools are key instruments in dealing with the rise in apartment prices in the absence of a substantial increase in supply. "This attention indicates the great importance of developments in this market for the setting of monetary policy in its various aspects," says Bank Leumi.

Source Globes

2014... more renders of White City Residence

A slideshow with more renders from White City Residence as well as a couple of pictures taken from the crane to show what the view will be like in the finished building.

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"Homeless billionaire" mulls Tel Aviv home

Nicolas Berggruen, known as the "homeless billionaire," has told "Globes" that he is considering buying a home in the luxury Tel Aviv project that he is developing. Berggruen, whose company Berggruen Residential is developing the 37 floor Meier on Rothschild project said, "Perhaps in the end I will buy an apartment in the project. But will I use it very much? No. Because I don't live here."

Berggruen, 49 tomorrow, the founder and president of global real estate developer Bergruen Holdings, is called the "homeless billionaire, because despite having wealth of $2.2 billion and being in "Forbes" list of 500 billionaires, he owns neither a home or a car and spends most of his time traveling and staying in hotels. Berggruen's late father Heinz, one of the world's largest art dealers, fled Nazi Germany for the US in 1936.

Berggruen's Jewish roots have drawn him to Israel. He said, "We simply wanted to find interesting things to do in Israel. It took us a year to find something unique". Construction will begin in the coming months on the Meier on Rothschild project, on the corner of Rothschild Boulevard and Allenby Street in the heart of Tel Aviv's financial district. The project has been designed by world famous architect Richard Meier.

Berggruen who arrived in Israel yesterday told "Globes" that he was drawn to Israel by his Jewish background. He said, "Israel is an interesting country, full of life and there are opportunities here. But I am sure that in some emotional way there is a connection between my Jewish roots and my investment here". He added, "What interests me in Israel is to put up a unique project. There is no point in doing something just to do something, and which resembles other projects. We are talking about a small country where it is not easy to do business. So why put up a project here if I could put up an identical project in another place in the world more easily". He continued, "In Israel everything is more complicated. Everything requires a discussion and takes more time and there is more administration. In my opinion, because this is such a small place everybody is more active over every matter. There are many clever people here and that complicates matters."

In addition to the Meier on Rothschild project, Berggruen also invested in seven historical properties slated for conservation in Tel Aviv's Nahalat Binyamin Street. The project was recently sold to Y. H. Dimri. Berggruen explained, "In Nahalat Binyamin we lit a spark of enterprise but it was less important that we complete the project. It is difficult to do business and a headache to implement preservation and restoration projects and work here with the various planning committees, mainly in the area of preservation sites."

He said, "So we decided that if we are investing our energies in something it is preferable to do invest in a project that has a view of Tel Aviv - the project in Rothschild Boulevard". He continued, "I have no doubt that the Nahalat Binyamin project will be implemented. But it doesn't bother me that much if it does or doesn't because it's not a building that we started from the beginning but buildings we preserved". Berggruen added, "In Rothschild, in contrast, we were ready to invest time and headaches, and pay an architect from New York. In Rothschild, I don't want to cut corners. Meier and I expect quality and we are ready to sacrifice for it. Here we have to do it from A to Z".

He stressed, "Richard Meier's influence on downtown New York, the city's business center, is an example of what can happen in Tel Aviv. He said, "There are perhaps 12 architects that changed the face of New York. If we arouse this ambition in Tel Aviv and influence other developers to do like us we will have an impact and that's what excites me about this project".

Berggruen explained that 45 of the 91 units in Meier on Rothschild have been sold including to famous people like Nat Rothschild. He said, "Some of my friends have bought apartments in the project and there is a lot of pressure on me to provide a good product. They'll get in touch with me if something is wrong".

Source Globes

Apartment prices in Tel Aviv 32% higher than last year

The average nominal price of an apartment in Israel was 3.2% higher in the second quarter of 2010 than in the preceding quarter, and 17.2% higher than in the corresponding quarter of 2009, the government assessor reported today. The Consumer Price Index (CPI), excluding housing, rose by 2.2% between the second quarter of 2009 and the second quarter of 2010.

The government assessor reviewed a sample of 4,700 purchases of apartments in 16 cities in the first and second quarters of 2010.

In Tel Aviv, the average price of a four-room apartment rose 32% to NIS 2.31 million in the second quarter from NIS 1.76 million in the corresponding quarter. In Herzliya, the second most expensive city, the average price of a four-room apartment rose 14% to NIS 1.65 million in the second quarter from NIS 1.44 million in the corresponding quarter. The average price of a four-room apartment in Jerusalem rose 19% to NIS 1.62 million in the second quarter from NIS 1.35 million in the corresponding quarter; the average price of a four-room apartment rose in Haifa rose 20% to NIS 985,000 from NIS 823,000, and the average price of a four-room apartment rose in Beersheva rose 23% to NIS 626,000 from NIS 508,000.

The government assessor said that while apartment prices were affected by several factors, it was difficult to isolate the effect of any single factor. However, it seems that the low inventory of new apartments for sale - about 13,000 units - is a dominant factor, which is pushing prices higher.

Source Globes