BACKGROUND & TIPS
Firstly, do your homework. New builds involve a rapidly changing landscape and a note that a "view today can be gone tomorrow".
Bear in mind that it may take time for surrounding infrastructure & amenities to be completed Also bear in mind that the development may be in an area where there is going to be continued construction for years to come. Accordingly you may experience poor transportation links and amenities in the short term, not to mention the extra dust and noise. Hiring an independent engineer to check on the area and the work being done is a good idea. Not all builders are happy with having outsiders coming onsite during construction, so this is an important point to see if this is agreeable beforehand.
Secondly, remember that the develop's representatives are his emloyees and that you are essentially part of their monthly sales target. However nice or polished they appear to be, always remember that they are acting first and foremost in their his interests rather than in yours. It may thus be prudent to have an experienced, independent professional on your side by your side. The reps could be trying to persuade you to buy a flawed, less desirable apartment offering an unrepeatable discount limited to a certain number of hours or days.
New build apartments often take 2-4 years to complete which if you are converting to shekels with funds from overseas, also means exposure to volatility in foreign exchange rates. It is also worth noting that outstanding balances are usually linked to the Property Bulding Index potentially raising the overall price of the apartment. In 2022 a law was passed restricting the proportion of the purchase price that can be indexed to 40%. Some developers may be willing to waive indexation altogether depending on the customer and construction period remaining.
Discounts on paper may not be as real as they seem. After all, your money is tied up for much of the time and you may have to pay rent at the same time. Additionally, new apartments often require significant additional investment despite much vaunted claims of many extras being included.
If buying for investment, bear in mind a possible oversupply of new apartments in the area. It may be harder to find a tenant at what you believe or were told is the market rent.
Using the services of an experienced interior designer is strongly recommended before making ANY commitment, even just the "reservation" form. Changes requested afterwards will be much more difficult to negotiate and will inevitably cost you much more.
Hire your own lawyer. The developers rep may tell you that it is a standard contract and that very few changes can be made and that the extra cost is unnecessary. However, the builder's lawyer role is to represent him and him alone. The builder will usually ask you to cover the cost of his lawyer. Note that for most apartments, the Government has recently limited this amount to 0.5% of the apartments sale price or 5.000 NIS + VAT the lower of the two. Apartments over 4.6m NIS are not covered under this law so they are free to demand the usual 1.5% + VAT above this level. Your lawyer will typically charge between 0.5 to 1% + VAT to represent you in the legalities.
Be prepared for delays. The compensation clauses do not give you an automatic, immediate or full entitlement to money to cover any extra rent you might have to pay until the apartment is complete.
Purchase or purchasing groups ostensibly provide a cheaper way of buying property in Israel. The former are a group of non-related buyers or a non-profit organization that acquires the land and together hires a contractor to build for them. There are sometimes tax savings on the land. However, there may be delays, unforeseeable expenses and overruns. Many costs are not avoidable.
The latter may co-operate with a developer to bid together and gain a smaller discount, eliminating risk for the developer. This is a low risk form of bulk buying, but there may be less flexibility with design.
PAYMENTS TO BUILDER
The builder may not receive more than 7% of the sale price unless he has provided one of the following:
A Bank Guarantee on all amounts paid. (Ask for this to be indexed)
An Insurance policy for the amounts paid with the buyer named as beneficiaries
A lien (1st legal charge) or cautionary note in favour of the buyers
Transferred title or proportionate amount thereof into the buyers names
PAYMENT SCHEDULE IN STAGES
40% By completion of ceiling of support level or floor of first level.
20% By completion of building shell
15% By completion of internal plastering or equivalent
15% By completion of external plaster or stone
10% By completion of apartment in accordance with law.
WARRANTIES
New apartments come with a warranty as defects often only emerge with time. Others are a matter of wear and tear and are not the builder's responsibility. Accordingly, a timetable of inspection of faults is included in the law as follows with a period of execution of 3 years after the inspection period. There may be instances where liability extends further.
Signficant peeling of exterior 7 years
Cracking on walls and ceiling 5 years
Water ingress from roof walls 3 years
Machinery & equipment 3 years
Plumbing & piping 2 years
None fundamental flaws 1 year
BANKS
Israeli banks will usually lend overseas buyers a maximum of 50% of the purchase price of the apartment subject to credit status and serviceability.
It is possible to borrow in foreign currency at relatively low rates but not that these are variable
Fixed shekel loans are also available
Note currency conversation costs via the banks include commision and a buy sell spread. This often amounts to well over 1%. There are ways of saving here by going through currency transfer specialists but there is always going to be an element of risk attached. A way of mitigating this is via the use a company that is endorsed by an organization you trust or one backed by an insurance policy.
SUMMARY
To sum up buyng new build in Israel can be both challenging and yet also rewarding. It is my hope that this article will have proved to be a helpful resource for you in your quest to acquire an apartment in Israel. However, please note that it is intended as a general guide only, cannot be comprehensive and is also subject to change. Accordingly, it should not be relied upon and no warranty for any information herein is given or to be assumed.
The writer, Ilan Rubinstein, UK born, is a licensed Israeli real estate agent with over 15 years’ experience in Israel, is the C.E.O. of I.L.A.N. Estates & Investments.
Ilan advises & assists olim acquire new & existing property, investments and businesses throughout Israel.
