There are many moments when immigrants to Israel finally feel like their dream has come true. For some, this moment comes when their children speak Hebrew more fluently than English; for others, it is when they suddenly find themselves answering the questions instead of asking them; but for many, it is the moment they hold the keys to their very own home in the Holy Land.
This article will survey the considerations that go into choosing a community in which to buy property in Israel, the details involved in calculating real estate prices in Israel – including taxes, legal fees, financial considerations, mortgages, moving costs, and explanations of key terminology, an introduction to the home ownership process, and some basic tips to remember when buying your home in Israel.
Table of contents:
- Choosing a Community
- Calculating Costs
- Home Ownership Process
- Insider Tips
Naturally, the first thing you need to decide when buying a house in Israel is in which community you would like to settle. There are many factors that go into choosing a community, including prices, school district, zoning, transportation, climate, quality of life, employment opportunities, Anglo community and, of course, location, location, location!
Whereas being part of a Jewish community abroad generally requires living in an urban center, when purchasing houses in Israel, olim suddenly find themselves with a wealth of different options. For example, those looking to integrate into Israeli society and live in more rural areas may consider living on a moshav or joining a kibbutz, and those who want to affect change by living in an underdeveloped community may want to become part of a “garin”.
For many families moving to Israel, especially those with young children, it is very important to find a community with other English speakers in order to have an easier absorption process and access to appropriate educational options. Some of the most popular choices for olim to buy property in Israel include Jerusalem, Bet Shemesh, Modi’in, Efrat, Chashmonaim, Zichron Ya’akov, and Netanya, but the options are endless.
Whether you are looking to buy a previously-owned home or a brand new home directly from a contractor, it is important to understand the nitty gritty details of Israel real estate prices and how they are calculated – including all of the surprise hidden costs.
An additional expense to take into account when buying houses in Israel is the purchase tax, a graduated tax based on the value of the home, which must be paid within 60 days of the signing of a contract. This tax is calculated based on the division of the total purchase price into various brackets, where a different rate is applied to each. A buyer is taxed approximately 0.5% on the first $100,000, 3.5% on the next $65,000, and 4.75% on any sum above $165,000. Please note that the rates change every few months in accordance with the Israeli Consumer Price Index, so it is important to verify the latest rates at the time of your purchase.
In the event that the tax authorities do not accept the price agreed upon between the buyer and seller, they will send a representative to appraise the true market value of the home, subsequently charging purchase tax based on that number.
The Purchase Tax is applied differently depending on your legal status. For example, new immigrants (olim hadashim) and temporary residents pay a reduced rate within five years of their aliyah (or within one year prior to the official date of immigration). In this case, the buyer pays 0.5% on the first $225,000 and 4.75% on any amount above $225,000, although, again, it is important to check for the most updated rates.
If you are selling your current house in Israel to buy a new one, you must factor in the Capital Gains Tax – also known as the Land Appreciation Tax. If you are selling your property in Israel for more than you originally purchased it for, you are obligated to pay somewhere between 20-50% on the profit, according to the rate at the time of the original purchase. Exemptions from this tax are available in certain situations, so make sure you check with a lawyer to determine your eligibility.
Additional property taxes to be aware of include Income Tax (Mas Hachnasa), which may be relevant if you plan to rent out part or all of your home, and Municipality Tax (Arnona), a tax levied on buildings by the local authority. The Municipality Tax rates, which change annually and vary depending on the area, are calculated based on the size of the property. For more information on these taxes, visit this website and speak to a professional legal or tax advisor.
Buying a home is a complicated process, which always requires the guidance of a legal expert with thorough knowledge of the Israel real estate laws and processes. Real estate attorneys generally charge between 0.5-1.5% of the property value, with many lawyers charging a minimum of 5,000-10,000 NIS. If you are buying a new property directly from a developer (kablan), you may also be expected to pay the developer’s legal fees, generally 2% of the purchase price, regardless of the fact that the seller’s lawyer neither represents you, the buyer, nor looks after your interests.
Real estate agents generally charge both the buyer and the seller between 1.5-2% on the purchase price, although you can try to negotiate a different arrangement with the agent as to the commission rate and the way in which it will be paid.
Although the seller is obligated to disclose all property defects, when buying a previously owned home it is recommended to hire a professional engineer to inspect the property in advance. The cost for a professional inspection is generally between 2,000-4,000 NIS, depending on the size of the property and whether or not you require a written report of the conclusions. Although this may seem like an extra expense, it can save you money in the long run in lawsuits against the seller as well as additional repair and replacements. You will also want to know of any building code violations which could lead to municipal lawsuits or demolition orders, as well as municipal plans in the area which could affect the value of the property.
It is also advisable to hire a professional engineer to inspect a new home that is currently under construction. Both the buyer and builder should sign a protocol that includes all defects that need to be repaired by the builder and the timeline in which the builder is obligated to take care of these issues.
When transferring large sums of foreign currency to pay for your new home, you will incur both transfer and conversion fees. You should also take into account currency fluctuations, as your buying price will likely be fixed in shekels, yet your purchase price may change, depending on the value of the foreign currency relative to the shekel.
In order to get the best exchange rates and minimize additional fees on both ends of the transaction, consider transferring your funds with IsraTransfer, instead of through a bank. We will also take care of all the financial bureaucracy that comes with buying a home in Israel, including the payment of builders’ vouchers, tax vouchers, and preparing banker’s drafts.
If you are buying a new property in Israel from a developer, the purchase price is generally linked to the constantly changing rate of inflation – the Consumer Price Index (Madad) – or the Israeli Building Index. Any amount owed to the builder must be paid based on the minimum of the index listed in the contract. In the event that the index increases, so does the property price, but it cannot drop below the base index specified in the contract.
If you decide to buy property in Israel “on paper,” the price listed at the sales office generally includes only the basic design, which oftentimes does not meet buyers’ needs. Whether you decide to upgrade the kitchen, add more electrical outlets or change the tiles to suit your taste, chances are you will end up adding thousands of shekels to the original price. Previously owned homes, on the other hand, often require extensive renovations that can come to 5-10% of the total cost – such as replacing the plumbing, adding air conditioning units, or redoing the floors, not to mention the “small” expenses, such as repainting.
People often forget about these expenses when they are in the process of negotiating a mortgage, and then as moving day approaches, they are suddenly hit with enormous costs that they did not take into account.
These one time fees are often overlooked by people who are focused more on the cost of buying their new home than the cost of moving into it. Depending on how much stuff you are moving and how far you currently live from your new home, you may pay between 3,000-15,000 NIS for movers. Beyond the purchase of whatever new furniture you may need or decor you may want, you will also need to pay for the initial utility hook-ups and meters. In the event that this includes connecting a gas line, it could cost as much as 10,000 NIS.
There are many different mortgage options, rates, and tracks available to buyers, which can be a source of great stress and confusion to anyone, nevermind foreigners or new immigrants who are not familiar with the Israeli system. When taking out a mortgage from an Israeli bank or lending institution, it is important to understand the terms and conditions of the different options available in order to find the loan that best suits your financial needs. Seemingly small differences in rates and terms can ultimately have an enormous effect on the overall cost, so it is advisable to compare several different loan options before moving forward.
For example, shekel mortgages can be linked to either the Bank of Israel’s prime rate or the Cost of Living Index (Madad), while mortgages in foreign currencies are based on the LIBOR (London InterBank Offered Rate) of the particular currency, plus a fixed premium. Banks offer loans based on variable, fixed, and semi-fixed rates, each with its own set of advantages and disadvantages. In order to guarantee the best conditions on your monthly mortgage payments, consider transferring your funds each month with IsraTransfer.
However, there are some standard mortgage fees that you can take into account even before you know the conditions of your loan. There is a fee of 0.25-0.5% for opening a file, and the bank may also require an independent appraiser to decide whether or not the purchase price of the property is in line with the actual value of the home, which affects whether or not the mortgage could be recovered in the unfortunate event of foreclosure. The buyer is expected to pay the 1,500-3,500 NIS fee for this appraisal. There are additional smaller costs involved with taking a mortgage, such as registration and power of attorney, and although they may only add up to a few hundred shekel, it is important to keep these fees in mind.
When calculating your budget, don’t forget that depending on your situation, you may need to continue paying rent or mortgage payments until your home is ready for you.
Each country has its own legal home ownership process, and even if you have received the keys and are already settling into your new home, you must still make sure that the title transfer process is in order. First of all, the process is different when buying a previously owned home registered in the Lands Registration Bureau (Tabu) and buying a new construction registered with the Israel Lands Administration (Minhal) or another registry.
In terms of a timeline, it may take several weeks or months between the signing of a purchase agreement and the time the buyer receives the keys, followed by a period of several months until the title transfer process can even begin. This process then takes several more months until it is finalized.
Because the title transfer is but one of many complicated legal processes taking place during the purchase or sale of a home, there are many potential issues – such as suddenly discovering that the house you want to buy or sell is not registered to the right person in Tabu. Although these situations are rectifiable, it will complicate the process and further delay the signing of a contract. Keep in mind that the title transfer process can only begin once all mortgage paperwork, tax clearances and certificates from the municipality have been submitted to Tabu. Once all the requisite paperwork has been received, everything needs to be reviewed and approved, which often involves calls for additional documentation and changes – so be prepared for delays, even if you provide everything in a timely fashion.
When the transfer is finally approved and the deeds are returned to the attorney, you must pay an additional fee in order to get a title abstract, which will record your ownership interests in Tabu. Only then are you officially considered the owner of your home. Mazel tov!
Buying a home in Israel is both exciting and confusing, with many legal and financial processes, beyond the major choice of the home and community in which you and your family will live. As is the case with any major decision, the more information you have, the better equipped you will be to handle the complications that come your way. Make sure you speak to professionals that have access to the most updated information as well as hands on experience, such as trusted real estate lawyers, tax lawyers, and mortgage brokers. In addition, it can be helpful to speak to other foreigners and immigrants who have recently gone through the process so that you can hear about their experiences and prepare yourself for the unexpected.
Remember that you are in the Middle East now. Whether you are settling on a purchase price or signing on mortgage rates, always negotiate for the best possible terms and conditions. When making deals with anyone – from the bank to the seller to the developer – make sure you get everything in writing. There are so many details to keep track of when buying real estate in Israel, and you will feel much more at ease and have a stronger legal leg to stand on if all of the details are in front of you in black and white, signed by the appropriate parties.
Although this may be a long and complex process, keep in mind that at the end of it all, you will own your own home in Israel. So on those tough days, close your eyes, take a deep breath, and imagine your grandkids sitting around the table and playing in your yard, and remember – it’s worth it!