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'There were some somewhat unexpected costs'

How to navigate the Israeli property maze: Pointers and pitfalls for homebuyers

With demand far outstripping supply, a little knowledge can go a long way in taking on the local residential real estate market

A new residential neighborhood in Herzliya, Oct 30, 2020. (Gili Yaari/Flash90)
A new residential neighborhood in Herzliya, Oct 30, 2020. (Gili Yaari/Flash90)

Israel’s property prices are soaring, but not even an increase of more than 10 percent in 2021 — the sharpest spike since 2013 — has appeared to deter buyers, who have very few long-term housing options.

First-time buyers and so-called investors (households that already own one or more dwellings) purchased more than 14,000 housing units in October, the highest monthly number since June 2015, according to Finance Ministry figures. That bolstered demand was likely fueled by a rise in purchase taxes on second homes that came into effect in November. And prices continued to rise in the final weeks of 2021.

Demand for housing in Israel has far outstripped supply for more than a decade, leading to a crisis that is only set to deepen, experts have warned. Into that combustible mix, a surging shekel against weakening foreign currencies such as the pound and the dollar is making home buying for immigrants to Israel, as well as native sabras, increasingly difficult.

For those who have managed to gather enough funds for a down payment, presumably through years of hard work and saving, combined with financial input from family members, there is a sense of relief (and at least some trepidation) at having made it onto the Israeli property ladder.

While there are some similarities between purchasing a property in Israel and purchasing one elsewhere, there are also aspects of the process that are unique. To shed more light on one of the most significant financial undertakings for families, The Times of Israel recently interviewed a number of immigrants about their house-buying experiences, as well as experts in the field who offered pointers and warnings of potential pitfalls.

Yair Givati, a partner at the Haim Givati law firm in Jerusalem who specializes in real estate, ran through some of the main differences between purchasing a property in the US and purchasing one in Israel.

“In the US, the defining date of any purchase is the ‘closing date,’ the date in which you make the last payment, get the deed and take possession of the property,” Givati told The Times of Israel. “In Israel, the defining date is the date you sign the purchase agreement, and everything derives from it.

“The report to the tax office has to be filed within 30 days of the signing, the purchase tax has to be paid within 60 days of the signing, etc. This is even if the apartment will be ready in two, four, or six years. It’s considered that the property was purchased the day you signed the purchase agreement.”

A view of new high-rise apartment buildings next to older small homes, in the southern Israeli city of Ashdod, on September 2, 2019. (Gershon Elinson/Flash90)

It is also much easier to get information, such as a much clearer public record about a given property, in the US than it is in Israel, he said. That is not to suggest that it is entirely unavailable, but it is much simpler for a professional to check on a purchaser’s behalf.

S.F., an immigrant to Israel from the US who purchased an apartment in a southeastern Jerusalem neighborhood in 2020, described some of the challenges.

“Purchasing a home not only seemed like a large investment but the level of bureaucracy in Israel and concerns over the title and other legalities and protections, as well as how to transfer the money for it, were all hurdles of concern,” S.F. said in an email interview. “In the US when buying a home, depending on the state, there will be a realtor involved and some kind of title company or a lawyer or paralegal that does title work.”

“Part of their obligation is making sure the buyer is aware of all sorts of issues involved, such as ‘CC and Rs’ which would be covenants, conditions, and restrictions on the property, or any right-of-way or other problems with surveys in the title. In Israel, some 93 percent of the land is linked to the government and there are multiple issues involved in who actually owns it. The fact that the majority of people purchase properties in large apartment blocks adds to the uncertainty over ‘ownership,’” S.F. added.

This issue goes deeper, Givati pointed out. “One would have thought that the size of the property is a straightforward question to answer. However, different registrars might show discrepancies. The main difference could be because the land registry and the municipality measure or include different parts of the property in the size of the apartment. There could also be parts the people have enclosed or built without a permit. While the land registry will not update the registry with illegal parts, the municipality will calculate the size, and the arnona [the municipal tax] is calculated based on the actual size of living space, even if there is no permit for it,” Givati explained.

“Updating the land registry with additional parts that were built, even according to permits, is not the most simple thing to do. So, people, many times would get a permit and build according to it, but will not update the registry with it at the end, due to the complexity, effort and time it takes.”

An image of a sign declaring an upcoming renewal project for a new apartment building to replace the old one seen behind it, in the Gonen neighborhood of Jerusalem, on January 19, 2020. (Hadas Parush/Flash90)

Another stark difference is who leads the transaction. In Israel, home-buying agreements are principally done through lawyers. There are many technical issues — including the lawyer’s liability insurance — that will add tens of thousands of shekels to the purchaser’s overall costs.

These fees are significantly less in the US and they mostly come out of the seller’s proceeds.

Rebecca K., a Tel Mond resident who immigrated to Israel from Virginia in 2006, said that the overall home-buying process “wasn’t terrible,” but some of the extra costs surrounding the purchase were more than she had anticipated.

“There were some somewhat unexpected costs, such as the fees to the agent [which will likely run into the tens of thousands of shekels at least], the lawyer, and the bedek bayit, a company of engineers in the field of construction review and supervision. In addition, there are payments to the shamai [appraiser], the mortgage broker,” she noted. Taking on a bank mortgage loan is a saga in itself, requiring signatures on dozens of pages of small-print text — in triplicate, she said.

Sticking to a firm but somewhat flexible budget is critical, she offered. “If you have a range in mind of how much things will cost, say between NIS 100,000 and NIS 150,000, it is okay to go up to that upper limit, but it’s crucial to be disciplined about not going over,” Rebecca said in an email interview.

“Using a skilled handyman, for example, rather than drawing on the professional services of an architect or an interior designer, will help keep down costs. If you are into undertaking your own building projects, then so much the better.”

Clinching the deal

Tzvi Shapiro, a co-founder of First Israel Mortgage, noted in a phone interview that mortgages were generally easier to underwrite (where the mortgage supplier verifies income, assets, debt, and property details to issue final approval for a loan) in Israel than they are in the US.

“There’s no mortgage-backed securities market here, while thousands of mortgages are packaged together in the United States,” Shapiro said.

However, Israeli banks have a different set of calculations.

“Interestingly, one of the nuances of the Israeli ecosystem that foreigners find surprising is that banks in Israel do discriminate based on age. There are no absolutely hard-and-fast rules, where some banks will tell an applicant that a loan has to be paid back by a person’s 75th birthday. In certain cases that could be pushed back until they are 85 or even 90. Exceptions can be made,” he said.

A view of construction sites of apartment buildings in Ramat Beit Shemesh Bet, on February 25, 2019. (Hadas Parush/Flash90)

Another key difference is in the final part of the process, Givati said. In the US, if financing for a property doesn’t come through for any reason, buyers can pull out of a deal.

“In Israel, it is the opposite. There are no contingencies. It is the buyer’s responsibility to check the financing prior to signing the purchase agreement, and if you are planning on getting a mortgage, you must get pre-approved prior to the signing. If you don’t and are unable to get the financing, you’ll have to come up with the funds; otherwise, you’ll be in breach of contract and you’ll get penalized for it,” Givati said.

In addition, in the US, a buyer is able to perform an inspection in the final stages, and many purchases are subject to inspection. If a surveyor’s report reveals significant issues, a purchaser would be within their rights to withdraw from the deal.

In Israel, “if an individual would like a prospective property inspected, [they] would have to do it prior to the signing of the purchase agreement. And if something untoward was found, a purchaser could either decide to not go ahead with the purchase, or, as part of the negotiations, the price would go down or the vendor could be asked to fix those problems.”

“However, if the purchaser has not performed an inspection or did not bring up anything — unless there are issues which the seller knew about and tried to hide — a purchaser would not be able to pull out of the deal because of it,” Givati said.

While the prospect of purchasing a property in Israel might seem overwhelming, both Rebecca and S.F. suggested contacting family and friends who have been through the process to personally recommend professionals they have worked with — from property agents, brokers, and banking specialists to contractors and interior designers.

With the government planning a building boom of some 780,000 homes over the next three years, potential buyers could come better prepared to take on the Israeli real estate market.

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