If you would like to read our full guide to buying a property in Israel click here to download our full pdf guide
Welcome to the CurrencyTransfer.com guide to buying a property in Israel. We passionately think that buying a home in Israel is exciting, fulfilling, and perhaps Zionistic adventure. And we’re here to help. If you’re thinking about making Aliyah or buying a dream second home, you’ll probably know by now there is a whole roster of decisions to make. Can I afford the duplex in Tel Aviv? Will we be approved on a mortgage? How on earth do I move my possessions to Israel? How should I move money in a post-Brexit world? The list seems overwhelming and endless. Thankfully, it doesn’t have to be. Congratulations and shikoyach on making it this far. You’re well on the way and by careful planning, the purchase can be smooth, seamless, and thoroughly enjoyable. We will provide you with nuggets of time and money-saving tips that we collected from our network of professionals which we have met through our countless property transfers.
The Basics: Israel counts rooms differently
Unfortunately there have been cases where clients have flown in to see a pre-prepared list of properties, only to discover that in Israel the living room is also counted as a room, and hence what she thought were a list of 4 bedroom properties, was actually a list of 3 bedroom (plus living room) properties. Also, finished to a very high level often means something different in Israel than in New York, London or Amsterdam. The standards and norms of where the customer is coming from should play a huge part in preparing a list of suitable properties.
Understand Exchange Rates Will Affect Your Purchase
Think about this for a moment. A mere 4% shift in the currency exchange rates on a 500,000 property can at best, make the difference in the choice of furniture, and at worst, mean your dream home is no longer within budget. From key macro-driven interest rate decisions to political earthquakes like Donald Trump and Brexit, keeping abreast of market movements is essential. We help you navigate and budget every step of the way and ensure that the market fluctuations don’t get in the way of a once in a lifetime adventure.
Sending money form the UK to Israel
The exchange rates over the last 3 months
Locking in a rate today can give you peace of mind when purchasing your dream home in Israel. Take the example of the Morris family who is buying a house in Netanya and are required to make their final balance transfer in a month and a half. The current GBPILS exchange rate is attractive, within budget and the family decides they are eager to guarantee the Sterling cost of their property abroad. Non-Bank Foreign Exchange specialists will allow you to fix the GBP to ILS exchange rate now, giving you the comfort of knowing the exact cost of your property in Israel, regardless of what happens with fluctuations in the exchange rate. Forward contracts are the perfect method of budgeting and staying in control.
The Legal Angle
There could be many nuggets in this category, as legal representation for property purchase is absolutely key in Israel. There is no “standard” transaction and having someone experienced in your corner batting for your interests is extremely valuable. The local market is culturally, and structurally unique, and we find that time and again foreign clients need to adjust their mindset and expectations to optimize their acquisition in Israel. Having the right legal advice is the best catalyst for a successful acquisition.
There are three major types of transactions in the local market:
1. A second-hand purchase of an existing property
The agreement will be with the current owner. The terms of payment are to be negotiated. A common transaction would be one where there are 3 – 4 equal payments from signature to completion.
2. Purchase from a developer of a new property under construction
The agreement will be with a developer. Payments terms will be spread over the construction phase. A down payment could be up to 25% with 10% left for hand over and the balance of 65% payable in equal quarterly payments throughout the construction.
3. Purchase of the rights to erect a new property in a Purchasers Group
Namely a number of parties who cooperate together to buy and develop a property, and then contracting themselves, as a group, with third parties to construct the development. The group will usually pay for the purchase of the land upfront, construction costs will be paid over the building phase in accordance with terms agreed by the group members in a cooperation agreement between them.
Real Estate Taxes
A seller who has purchased his property as of 01/01/2014 onwards is subject to payment of land betterment tax on his real gains (other than inflationary gains). The tax rate is 25% but a seller may claim various expenses such as his original land acquisition tax Pro Tip: Engage a property lawyer to ensure the title to the property was carefully reviewed. Pro Tip: Do not sign ANY forms of engagement with an estate agent before you have shown your lawyer. Pro Tip: Do not cut corners. There are mentality and cultural gaps between foreigners and Israelis. 11 (see hereunder), legal and broker fees on purchase and sale, property construction/renovations if the seller has valid vat receipts in respect thereof. A seller who has purchased his property prior to 01/01/2014 may be exempt from tax for the period up to 31/12/2013 and his tax calculation will commence as of 01/01/2014. A purchaser will be subject to the payment of land acquisition tax. This tax differs in accordance with the identity of the buyer. A foreign buyer will be taxed at 8% on that part of the purchase price up to NIS 4,967,445 (approx. US$ 1,376,000) and then taxed at 10% on the balance. A new immigrant may exercise his right (limited in time) to purchase his first residential property in Israel and enjoy a discounted tax rate being 0.5% on the first NIS 1,759,310 (approx. US$ 487,000) while paying 5% on the balance. An additional property purchase by such a party will be subject to the rates identical to a foreign resident as above. There is no difference in tax between a private purchaser and a company. Providing for a trust structure will not provide for a tax saving. A seller may be subject to improvement tax, a municipal tax applicable to a property which enjoys unexhausted building rights.
The most common mistake foreign clients usually make is to compare the real estate and mortgage industry between their home country and Israel. There are similarities but also huge differences. For example, a mortgage refusal in Israel is usually not considered as a reason to cancel a real estate deal.
A range of currency options
First and foremost recognize that the mortgage options are larger and more complex in Israel than in the rest of the world. Foreign buyers are able to take advantage of a range of mortgages in different currencies, including Israeli Shekel, Euro, US Dollar, British Pound.
Is there a significant price difference between different mortgage providers?
Prices between different lending banks very much depend on the clientele they target. It will usually vary according to the client profile and individual lender’s risk appetite and profile. Regarding interest rates, the first thing you need to be aware of is that they are currently higher in Israel than in Europe or North America for different reasons such as the cost of funds to the banks, the level of competition in the mortgage market and finally the disequilibrium between supply and demand of real estate and mortgages. Interest rates vary depending on the loan to value (LTV), the purpose of the loan, the loan period, and the borrower’s qualifications.
Factor in total costs
Be aware of the additional expenses for a real estate purchase, including amongst others: Legal fees, Bank Arrangement Fees, Surveyor, Title registration, Purchase Taxes, Estate Agent, etc. Depending on your status, a good rule of thumb is to expect additional unanticipated costs of 10-15% of the purchase price. To conclude, never stretch yourself to the limit based on the purchase price alone, given all the additional payments that need to be made.
For any enquires call
Nathan Perez: +44 (0) 20 7096 1036