Your “Silent Partner” in the Apartment: How Does VAT (18%) Affect Your Wallet?
When we talk about the cost of living or housing prices, we tend to look at the price of the apartment itself. But in today’s Israeli real estate market, there’s a “silent partner” that takes a huge share of every new apartment deal: value added tax (VAT), which currently stands at 18%.
At RS Nadlan, we meet quite a few buyers who are torn between “brand new, still in the wrapping” and a secondhand apartment. The common mistake? Comparing list prices and forgetting that one side of the equation hides an extra charge of almost a fifth of the price.
The Big Difference: Where Do You Pay and Where Don’t You?
This is the most important rule to know:
New apartment from a developer: Subject to full VAT (18%). The price you see on billboards (“starting from ₪2.5 million”) already includes VAT, but it makes the product significantly more expensive.
Secondhand apartment: Exempt from VAT. When a private individual sells to a private individual, there is no VAT on the deal.
Let’s Do the Math (It Hurts, but It Matters)
Suppose you have a budget of ₪2,500,000.
If you buy an apartment from a developer at this price: In practice, the net value of the apartment is only about ₪2,118,000. The rest of the money (about ₪381,000!) goes straight to the state as VAT. In other words, you got a “product” that is worth less, because you paid a high tax on it.
If you buy a secondhand apartment at this price: The entire ₪2.5 million goes toward the value of the apartment itself (location, size, renovation). You’re buying “more apartment” for the same money.
So Why Is Everyone Rushing to New Apartments?
There are good reasons for it: a safe room (Mamad) for security, underground parking, no wear and tear, and convenient payment terms (such as 20/80). However, in light of the high VAT (18%), the gap in price per sqm between a new apartment and a secondhand apartment in the same area keeps widening.
The Opportunity in the Secondhand Market
Precisely today, in an 18% VAT environment, secondhand apartments are becoming more attractive than ever (“Value for Money”).
Immediate savings: You don’t pay the VAT “newness penalty.”
Renovation instead of tax: Instead of paying ₪380,000 to the state as VAT on a new apartment, you can take a secondhand apartment and invest that amount in a dream renovation. The result? An apartment that’s as good as new, built to your standard, and often in a better location and a well established neighborhood.
Questions and Answers (FAQ)
Is VAT expected to go down soon?
It doesn’t look that way. In light of the state budget deficit and defense spending, the high tax environment (18%) is expected to stay with us for the coming years. It’s not wise to build a business plan on a VAT cut.
Question: Is there a way to get a VAT refund on an apartment? Answer: For a private individual buying an apartment to live in, no. VAT is a final consumption tax. Only companies and registered businesses that purchase commercial property for business activity can offset the VAT.
Don’t Let the Tax Call the Shots
Whether you’ve decided to go for the luxury and security of a new apartment, or you’ve spotted the financial potential of a secondhand apartment, we’re here to help you find the best deal. At RS Nadlan, a real estate agency in Ramat Aviv HaYeruka, we’ll present you with the full picture, including all the associated costs, so there are no surprises.
[Errors and omissions excepted. The information in this article does not constitute tax or legal advice. Every transaction requires an individual review. Errors and omissions excepted.]
