The number of real estate deals in the first seven months of 2002 was up 10.5% on the parallel period last year, but after adjusting for inflation, state revenues from taxation on property deals in the same period were down by a real rate of 3-4%.

Some 69,400 real estate deals were concluded in the period from January to August 2002 compared with 62,800 real estate deals in the first seven months of 2001. State revenues from property tax in the same period totaled NIS 1.82 billion, a nominal gain of 1.4%. However the figure translates as a 3-4% decline in revenues in real terms because of inflation in the same period.

State revenues from property tax thus failed to increase despite the authorization in November 2001 of the recommendations of the first Rabinovitch Committee, which reduced taxation in the real estate sector.

The reform was supposed to boost activity in the real estate sector via a series of tax benefits for both buyers and sellers, but industry sources say the reform has not had a major effect on the sector.

They attribute the slight increase in transactions to other factors such as the decline in apartment and land prices and the fact that many transactions that had been put on hold in 2001 in anticipation of the reforms went through in 2002. The sources added that the devaluation in the shekel, mortgage interest rates and the recession have more of an influence on the sector than the reforms.

The major tax benefit granted by the reforms was a 20-percent reduction in gains tax. Purchase tax was also reduced from 5% to 4.5%.

The state's revenues from purchase tax actually increased in the first seven months of the year to NIS 1.06 billion, compared with NIS 975 million in the parallel period last year, but given that the number of transactions was up by 10.5%, the state in fact lost NIS 180 million. Industry sources, however, note that without the reform the number of transactions may well have been lower.