The pricing plan for the occupant or Mehir Lamishtaken, which Finance Minister Moshe Kahlon extended at the beginning of his term to nearly 100% of state lands, aimed to benefit young couples who did not own an apartment, while directly benefiting private owners. Under the auspices of the program, private lands have become a rare and sought-after product, and private owners have allowed themselves to raise their prices by several tens of percent.
But a person who owns private land in Israel has also gained another interesting thing: one of the measures taken by the state to increase the supply of residential land was a temporary ordinance enacted in 2015, providing them with an advantage that allows for a significant discount on the payment of capital gains tax.
The advantage is intended for anyone who purchased land between 1961 and 2001 on which at least eight housing units can be built. This advantage, which allows for an average reduction of 16% in tax, depending on the year the land was purchased, is set to expire at the end of the year.
“To be eligible for the capital gains tax benefit, a number of conditions must be met: first, it must be land intended for the construction of at least eight housing units. Additionally, the construction on the land must be completed within three and a half years from the sale. It is the land on which the largest number of apartments can be built, the limit being the completion of construction within four years,” explains attorney Daphna Sirota Hollander, director of the real estate and urban renewal department at the Zvi Shov law firm.
Sirota Hollander notes that for those who purchased land during this period, the tax rate on the sale has begun to increase by about 48%. “The temporary ordinance reduces the tax for those years to only 25%, so the benefit can amount to significant sums: Anyone who purchased land in the early 1960s would only pay 25% instead of 40%. If the land was purchased in the 1970s, the reduction will be about 15%. This is a benefit that could represent hundreds of thousands of shekels and sometimes even millions of shekels.
The tax authority estimates that, as the opportunity to exploit the advantage will expire in two months, many transactions should be closed. However, developers in the sector believe that due to the strong position of private owners, it is uncertain that many will take advantage of this benefit.
“They want a million shekels for a housing unit in Petah Tikva”
Avi Zitouni, owner of Azitoni, who has only built residential projects on private land in recent years, states that “the prices of private land are crazy, they are asking for a million shekels for a housing unit in Petah Tikva, and it is very difficult to negotiate because landowners understand that they have the power and the price. We are currently negotiating two plots in Petah Tikva and Kfar Saba, and nothing indicates that they are rushing to sell.”
Zitouni added that “the price increases due to the Mehir Lamishtaken program are so significant that landowners have no reason to rush to sell, and they are not excited about this tax advantage, and most of them are waiting for further price increases this year.
Sirota Hollander believes that the owners likely to be interested are those who were considering selling anyway in the near future. “The advantage will also influence those who hesitate in the near future, as for every million NIS, the seller will save 160,000 NIS in tax payments. Thus, in cases where the tax is 3 million NIS, it is possible to save 500,000 NIS.”
However, she adds, another obstacle to realizing this advantage lies in the fact that it depends on a very short timeframe to complete the actual construction. “The goal was to increase supply, but there is no doubt that in some places, where it takes between a year and a half and two years to obtain a building permit, it will be almost impossible to complete the construction in three and a half years, and the seller depends on the buyer’s adherence to the deadlines. Known in such a case, to request appropriate guarantees.”
