A survey of all the different costs associated with buying a property in Israel
Buying a property is a complicated – and expensive – business, no matter where in the world you are. While you might have bought real estate in the past, the property sector in Israel has costs and fees that might differ from what you are used to or even from what you paid in the past. So, before setting your budget for a new place in Israel, make sure you consider all the costs to avoid any unexpected surprises.
The purchase price – the agreed price of your new property – is undoubtedly the biggest cost in real estate. However, the payment structure and timetable for when you have to pay y for your property differs depending on whether the property is bought second-hand or purchased in a new building from the builder/off-plan.
When purchasing a second-hand apartment, buyers have to pay upon signing the purchase agreement a down payment. This is usually at least 20% of the value – in order to secure the property. However, this is not a hard and fast rule and, as in almost every aspect of buying property, this is negotiable and can vary according to individual circumstances.
The most common way to split the payments for a second-hand apartment is in three instalments: 20%-40%-40%. Once again, though, these amounts can usually be negotiated. That being said, there are certain conventions. One of which is that the payment cannot be split 10/20% and 80/90% either at the beginning or the end of the process.
Another accepted convention is that the payment schedule for buying a second-hand apartment is usually completed within six months max.
Buying on paper / off-plan / direct from the builder
Buying from a builder/off-plan can be a little more complicated than buying a second-hand property. Fortunately, there are legal limits in place to protect buyers in what can be a protracted delivery schedule.
The first thing a savvy buyer should check is whether the builder has a construction loan. If so, the payment schedule can be negotiated, but still usually entails putting down at least 15% upon signing. Each and every payment must be made with specific payment slips (not doing so is illegal), in order for the bank giving the construction loan to issue a bank guarantee for every payment made.
If the builder did not take a construction loan, the only other way a buyer can pay is according to construction milestones that are set by law, provided that a caveat was registered in the land registry in the buyer’s name.
However, if there is no construction loan in place, then there is no bank guarantee. And if no caveat was registered yet, the builder cannot be paid more than 7% of the purchase price. In fact, doing so is illegal.
One last thing to know when buying from a builder/off-plan/on-paper is that the purchase price is linked to the building index rate (published by the Israeli Bureau of Statistics) at the time of the sign-up or the date the purchase agreement was signed . This means that any future (unpaid) payments will increase if the index goes up. This is calculated by comparing the rate of index at the time of the registration/contract signing to the rate of index at the time of payment. If the index goes down below the rate at the registration/contract signing, the value/price of the property will not decrease).
The purchase tax is the next highest cost other than purchase price. To understand more about this element of property purchase, please see the related article here.
The standard agent fee in Israel is 2% of the purchase price, plus tax.
Legal fees range from 0.5-1.5% plus tax. This is the most important cost as your lawyer is the one who insures and guarantees your purchase. In Israel, they take the place of Title Insurance and Escrow Companies in guaranteeing your transaction.
One thing to consider is that if you buy from a builder/off plan, you will also be charged legal fees for the builder’s lawyer. Since 2014, the amount builders can charge has been limited to either 0.5% of the purchase price plus tax or 5,019 NIS plus tax (this amount is linked to the CPI and changes at the beginning of each calendar year).
However, this legislation does not cover every transaction. When purchasing a luxury apartment (which the law designates as a purchase price exceeding 4,642,750 NIS – linked to the CPI index as well), the builder is not limited by the amount stated above and can charge whatever they want, which is usually 1.5-2% plus tax.
If you opt for a mortgage broker, expect to pay fees of about 1% plus tax of the borrowed amount. On top of this, the bank can charge 0.25% of the borrowed amount – as long as it doesn’t exceed 5,000 NIS. This fee can be negotiated and the bank will often give a discount.
Currency exchange fee
One charge that’s easy to overlook when buying property in Israel is the currency exchange fee. Foreigners interested in buying in Israel – or anyone who is using foreign currency for their transaction – must transfer money and convert it into shekels.
There’s no shortage of companies who can facilitate transfers, but no matter which method you use to exchange/transfer the money, transaction charges will be applied. Exchange companies usually charge 0.5-1% of the exchange rate. While that might feel like a big chunk of change, it’s more cost effective than exchanging money at the bank.
Registration and other fees
In addition to the main charges outlined above, there are a slew of different fees that need to be paid during the purchase process. That’s the bad news. The good news is that these fees should not total over 1,000 NIS. This figure covers a lien on the property to guarantee the purchase, a caveat for the mortgage bank, mortgage (if relevant), title transfer, etc.
Other fees are more variable. For example, when buying from a builder/off-plan, buyers also have to pay for measuring the building, preparing plans, fees, etc. This will usually cost a few thousand NIS. There is no set amount for this, however, it is negotiable, so make sure you ask for it to be reduced.
More fees after taking possession
Once you take possession, there are yet more costs to take into account. If you are buying an apartment that has already been lived in, the utilities bills must be changed from the seller to the buyer. These include water, electricity, gas, municipality, maintenance etc, which can incur a small transfer fee.
The most sizable transfer fee to take into account is a deposit for the gas meter, which the gas company will return when you sell the apartment. If you buy from a builder/off-plan, you will usually also have to pay the water company for the water meter, so plan accordingly. But fret not, these fees will not exceed a few hundred NIS.
Someone to lean on
Purchasing property in Israel can seem daunting and complicated. However, buyers are well protected by law with guidelines and legislation to protect buyers from being taken advantage of. Notwithstanding all this, it is critical to have a knowledgeable lawyer to guide you through the process and make sure these laws and legislations are implemented. No doubt there are a lot of charges and fees to pay throughout the process. But understanding all the extras and having a spokesman to represent you will help make sure you have enough money set aside to cover each new set of expenses.
Adv. Yair Givati is a lawyer at Haim Givati & Co, a firm specializing in real-estate law and transactions. Yair guides foreigners through the often daunting bureaucracies involved in purchasing a property in Israel, ensuring that the client is informed and comfortable through every step of the legal process.