Gedaliah Borvick from My Israel Home joins IsraTransfer to discuss the pros and cons of "existing" vs. "on paper" properties in Israel.
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Old vs. New Property in Israel
When looking to buy a home in Israel, many My Israel Home clients prefer an existing property because it seems easier. You don't have to look at a set of plans and imagine how the finished product will look. Just walk in and look around! There is no fear that the contractor will go bankrupt and not finish the project. There is no long waiting period. After the contract is signed, the buyer gets the keys. Many existing properties are in major cities and desirable places. Developers build where there is space, and this is often outside the high-demand areas.
"There is also the romantic element," Gedaliah explains, "Many people who buy properties in Israel are attracted to the arched windows and other architectural elements of charming old buildings."
But there are some downsides to buying existing properties in Israel. Older buildings don't come with the same amenities and structural support as new buildings. They often lack elevators, parking spots, and sukkah balconies. New buildings are built to higher construction standards and are more earthquake resistant. They contain a built-in "mamad" or safe room, an essential in any Israeli home.
Although it may take a few years for the new home to be ready, some don't mind the wait. Families planning to make Aliyah in a few years might prefer not to pay all at once for an existing property. Instead, they'd rather pay for something built slowly in order to spread out payments over time. Sometimes "on paper" apartments are more affordable than comparable homes in major cities where demand for housing exceeds supply.
New Laws Protecting Buyers
Over the years, there have been horror stories of construction projects going bankrupt midway, leaving buyers without a home or money. One famous case involved the former with building giant Heftziba in the summer of 2007. When the company went bankrupt due to shady dealings, nearly 5,000 individuals were left hanging. Many lost their entire life savings. It's no wonder people are wary of buying on paper!
Less well-known are the strict regulations put into place by the Israeli government following the Hefziba affair. New laws offered the buyers unprecedented protection by getting the Israeli banks involved.
Today, a developer cannot sell "on-paper" property unless there is a bank guarantee. This policy ensures that the developer will complete the project, or the bank must return all money to the buyers. Since this is against the bank's best interest, they are highly motivated to ensure the building project reaches completion. Therefore, the bank plays an active role in overseeing the building process and corresponding bills and sending engineers and other professionals to the job site to check that everything is happening according to the developer's claims and documentation.
The banks thereby become partners with the developers and even have the final say on matters of price. If the bank doesn't agree to the amount the developer wants to charge, the price must change.
This system of and other laws (such as the developer's obligation to cover the buyer's rent if the project isn't ready on time) offers a new level of protection. Still, Gedaliah says, he won't work with some companies because their standards are not up to the level that his clients desire.
The Home of your Dreams
New Property: Standards of Work
Every developer is different, and so is the quality of their project. While a property might up to code, it doesn't mean the quality is what buyers from overseas want. It is crucial to make sure the company building the project cares about its reputation and is willing to work with its clients. A new home might come with a "standard finish" with the option to upgrade. Many people from outside of Israel want a large kitchen or other features that aren't part of the standard package.
As Gedaliah says, "Keep in mind, things will ALWAYS come up when buying on paper. You want a developer who is going to work with you." Buyers must understand what they are getting into and the sum of special features or add-ons.
Existing Properties: Renovations
When buying an existing property, it's essential to have a professional rule out structural issue. To the untrained eye, a large problem might seem small and vice versa.
Also, a trained expert can let the buyer know if certain renovations are possible.
"Sometimes you want to buy an existing property and renovate it in a certain way and it's just not possible." For example, the water source might be too far away from where you want a bathroom.
What if you are living abroad and overseeing a renovation? "Renovations are a big undertaking, and doing them from 6000 miles away is too hard for everyone." You have to know yourself and what you can handle.
Finding the Right People
Whether you're buying an existing property or "on paper", make sure to secure a good team of professionals. In addition to a reliable real estate company like My Israel Home, other experts will ensure the process goes smoothly.
A good lawyer who can write a solid contract that is in your best interest.
Money exchange experts, like IsraTransfer, can help you through the (often complicated) process of transferring your funds to Israel and paying for the property.
Find a mortgage broker before you sign your contract so you know what your financial obligations are.
One or more designers can tell you if what you want to do is possible.
An engineer who can spot any structural issues or damage.
For Gedaliah, it's not just about selling a home but making sure his clients are surrounded by the right people so that this potentially scary process can be enjoyable. "At the end of the day, you are buying a home in Israel, and it should feel like what it is: fulfilling a dream."
Gedaliah can be reached at myisraelhome.com or by email at gborvick@myisraelhome.com
