Netanya Real Estate

There are a number of steps to be taken before buying an apartment in Israel. In the following article I shall briefly survey these steps.

When you come to buy an apartment, the first thing to do is to define the purpose of the purchase. There are three main purposes for which an apartment is purchased:

Holiday Apartment: If this is to be a holiday apartment, you should check the proximity to the sea, the Old City or any other place in which you are interested. It is extremely important to purchase an apartment where there are permanent tenants who will care for the building, rather than buying in a deserted place where the apartment owners have no interest in the building.

Residential Apartment: If you are interested in a residential apartment, you should first examine the residential area. Are there English-speakers in the area? Which synagogues are nearby? How far is the shopping centre? It is also very important to know what activities are available in the area and what organizations, such as HOB, the AACI, etc.

Investment: If you are interested in an investment, you should examine rentals in the area. Who resides in the area? What return is there? Is there someone who can arrange to rent out the apartment? What is the potential for a rise in the price of apartments in the area? The condition of the apartment must also be examined.

The second matter to be examined is the budget available for purchasing the apartment. This may be divided into two parts:

1. The budget for purchasing the apartment.
2. The budget for on-going maintenance of the apartment.

Firstly, with regard to the budget for purchasing the apartment, the price of the apartment is not the only amount to be paid at the time of purchase of the apartment.

Purchase tax, attorney’s fees, currency conversion fees, real estate agent’s fees, and miscellaneous costs.

All of the above, plus the fee of the contractor’s attorney and bank guarantees.

Purchase tax:	I wish to emphasize that from the point of view of Israeli income tax, a wife with children under 18 are considered a single family unit, and therefore if the wife owns an apartment in her own name when the husband purchases an apartment in his name, he will pay the higher rate as if he owns an apartment.
Attorney’s Fees	It is most important to have an attorney who will examine the title and the agreement and will register the apartment in the name of the purchaser. Attorney’s fees range between 0.5% and 1.5% plus VAT, depending on the complexity of the transaction.
Currency conversion fees:	When purchasing an apartment in Israel it should be remembered that it is generally necessary to make payment in Israeli shekels and not in dollars, Euros, etc. When converting money to shekels, take into account a cost of between 0.1% and 0.5% of the amount that is being converted.
Real estate agent’s fee:	Generally the real estate agent’s fee is 2% of the amount of the transaction, plus VAT. Unlike in the UK, U.S.A., and Canada, in Israel the buyer is expected to pay for the service received from a licensed real estate broker in helping him search and select a property to buy.
Miscellaneous	Among other things, this includes the cost of translations, cost of registration in the Land Registry, etc.
In a new apartment:
Contractor’s attorney fee:	A distinction must be made between the fee paid to the contractor’s attorney and the fee paid to the private attorney. The attorney of the contractor does not represent the purchaser, only the contractor. The only thing for which he is paid is the registration of title in the name of the purchaser in the Land Registry. The attorney for the purchaser cannot register this type of apartment, because this is a new project, all of the apartments must be registered at the same time and by one lawyer.
Bank guarantee:	According to Israeli law, all payments above 15% to the contractor require the contractor to give guarantees to ensure the money. The most accepted manner of ensuring the money is by means of a bank guarantee. Most of the building projects in Israel are accompanied by some bank which grants the contractor the loan for construction of the building. In order to ensure its loan as well as the money of the purchaser, the bank requires that every sum be deposited in a special bank account. Each amount that is deposited in a special account, the bank issues a bank guarantee. The money is released from this account to the contractor in stages only after the contractor has completed a particular stage. The bank sends an engineer to check that the stage is in fact complete and has been built as required. If the company goes into bankruptcy, the bank that guarantees the purchaser’s money generally finds another contractor and completes the building. In such a situation it is guaranteed that the contractor will not receive money for work which has not been carried out. The cost of this guarantee is about 1.2%. It should be emphasized that that the purchaser’s attorney should confirm that the purchaser’s title is properly protected when returning the guarantee to the bank.
Linkage to the construction inputs index:	When purchasing an apartment from a contractor you should be aware that the price of the apartment is linked to the index from the date of signing of the agreement to the date of actual payment. At times the price is linked to the dollar or the consumer price index.
Expenses after receiving the apartment:	You should take into account that after receiving the apartment there will be current expenses for the apartment such as: house committee fees, insurance, municipal rates, etc. These expenses should be checked before purchasing the apartment.
Stage 3 – financing the purchase:	After we have decided what kind of apartment to buy and what our budget is, we have to decide how we are going to finance the purchase of the apartment. The first option is to pay the full amount in cash. The second option is to take a mortgage. All mortgages in Israel are linked to a particular index or to a foreign currency. The three principle types of mortgages are: A mortgage linked to the consumer price index, a mortgage linked to the prime rate and a mortgage linked to a foreign currency (dollar, pound, Euro, etc.). At this time the usual interest for the various types of mortgages is: Index linkage plus 4%-4.5% Foreign currency (dollar) linkage LIBOR plus 1.6-1.8% linked to prime plus 2%. If you wish to receive a mortgage above 60%-70% of the price of the apartment, it is necessary to purchase insurance for payments above 60%, generally known as EMI. The cost of EMI is very high, about 4% of the value of the loan. Due to its high cost, it is not recommended. There are a few other costs which must be taken into consideration: 1. The bank charge for processing the mortgage is approximately 0.25%. 2. Life insurance and building insurance are required. 3. The cost of registration of the mortgage/lien in the Land Registry/Lien. 4. Nowadays there are mortgage counsellors, and it is worth consulting with them.
Stage 4 – signing the agreement	Before the agreement is signed it is desirable that everything has already been agreed upon so that it is all included in the contract. It is important that there be an English translation of the agreement as well as all of the principle documents attached to it. It is important that the purchaser’s money be protected as required either by means of registering a caveat or registration of mortgage or by means of a bank guarantee.
Stage 5 – delivery of the apartment	There is a distinction between a new and a second-hand apartment. Generally, second-hand apartments are sold as is, and even if flaws are discovered, you may not demand their repair unless they are hidden. In purchasing a new apartment, the responsibility of the contractor for the apartment according to the law is for three years, and in addition, the civil tort law gives another 4 years. Regarding new apartments, there are several dates which should be made note of: Date A – Receipt of the apartment. On the date the apartment is received, a protocol is drawn up between the contractor and the purchaser. All defects found in the apartment must be recorded in the protocol if it is a defect which can be found by the eye of a non-professional. It is therefore most important to record all the defects in the delivery protocol. Afterward the contractor has one year to repair all the defects recorded in the list. Date B – First year. The contractor must repair every defect found during the first year. Date C – During the second and third years if a defect is found, the purchaser must prove that the defect is the result of a flaw in the work of the contractor. Following this, the contractor must repair it. With a new apartment it is recommended to hire an expert – an engineer who will examine the apartment and provide a detailed report regarding all defects.
Miscellaneous:	When the purchaser is abroad when the apartment is purchased, he will desire to have the attorney make all payments for him. The purchaser should insist that a special trustee account be opened and that you are provided with a financial report at least once every three months. Elliot Rosenstein Rosenstein Law Office, located in Netanya, Israel

The Israeli Knesset has set a new scale of purchase tax (stamp duty) for first properties in Israel.
Properties valued from 0 - 850,000 shekels = 0%
Properties valued from 850,000 - 1,300,000 = 3.5%
Properties valued above 1,300,000 shekels = 5%