Everything You Need to Know to Buy Property in Israel

Updated: Jan 7, 2020


buying property in Israel

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.


Table of Contents

  • Choosing a Community

  • Calculating Costs

  • Purchase Tax (Mas Rechisha)

  • Capital Gains Tax (Mas Shevach)

  • Legal Fees

  • Agent’s Commission

  • Property Inspection

  • Foreign Currency Transfers

  • Inflation

  • Home Improvements

  • Moving and Setup Costs

  • Mortgage (Mashkanta)

  • Current Rent/Mortgage

  • Home Ownership Process

  • Insider Tips

Choosing a Community


Naturally, the first thing you need to decide when buying a home 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

  • Synagogues

  • Public 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 a home 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 may be important to find a community with other English speakers in order to have an easier absorption process and access to appropriate educational options. With that in mind, some of the most popular choices for English-speaking olim to buy property in Israel include Jerusalem, Bet Shemesh, Modi’in, Gush Etzion, Chashmonaim, Ra'anana, and Netanya, just to name a few..


Calculating Costs


Whether you are looking to buy a previously-owned home or a brand new one directly from a contractor (on paper), it is important to understand the “nitty gritty” details of Israel real estate (nadlan) prices – including all of the surprise hidden costs.


In this special report we will survey the considerations that go into choosing a community in which to buy property in Israel – including taxes, legal fees, financial considerations, mortgages, and moving costs. Additionally, we will provide explanations of key terminology, an introduction to the home ownership process, and some basic tips to remember when buying your home in Israel.


Purchase Tax (Mas Rechisha)


An important expense not to be overlooked when buying a home in Israel is the purchase tax, a graduated tax based on the value of the home, which in most cases 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. For example, a buyer of a sole residential apartment is exempt from tax on the first 1.7 million shekels in home value (approx.). The next 300,000 NIS (approx.) is then taxed at 3.5%. From 2 million to 5.2 million NIS (approx.) in value the buyer is subject to 5% tax. Getting up into the highest of levels, from 5.2 million to 17.3 million NIS (approx.) in home value a tax of 8% is imposed. Anything beyond that is taxed at 10%. Please note that the rates change every January in accordance with the Israeli Consumer Price Index, so it is important to verify the latest rates at the time of your purchase.


Purchase Tax is also applied differently to multiple home owners, or even depending on your legal status. For example, new immigrants (olim hadashim) pay a reduced rate within seven years of their aliyah (or if the apartment was purchased within one year prior to making aliyah). In this case, the buyer pays 0.5% on the first 1.79 million NIS (approx.) in value, and 5% on any amount above that, although, again, it is important to check for the most up to date rates.


Capital Gains Tax (Mas Shevach)


If you are selling your current home 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 around 25% at the most on the net gain. Exemptions and/or leniencies from this tax are available in certain situations, so make sure you check with a lawyer to determine your eligibility and plan ahead prior to the sale.


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), levied on homeowners 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, please speak to a licensed real estate agent or local municipality (irya).


Legal Fees


Buying a home is a complex process, which always requires the guidance of a legal expert with thorough knowledge of Israel real estate laws and processes. Real estate attorneys generally charge between 0.5-1.5% (plus V.A.T.) 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 will have to pay the developer’s legal fees. For apartments which purchase price is lower than 4.6 million NIS (approx.) this will be limited to 5,000 NIS (plus V.A.T.), and for apartments that cost more than that, it’s not limited, but generally it will be 1.5% of the purchase price (plus V.A.T.), regardless of the fact that the seller’s lawyer neither represents you, the buyer, nor looks after your interests. This is to cover the costs of registering and transferring title to your name when the building gets registered.


Real Estate Agent’s Commission


Real estate agents (Metavech(et)s) generally charge both the buyer and the seller between 1.5 - 2% (plus V.A.T.) 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.


Property Inspection

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 the event of a lawsuit against the seller, as well as additional repairs and replacements.


It is important that a professional engineer inspects any new home currently under construction. Both the buyer and builder must sign a protocol before taking possession, 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. The law states different warranty periods and obligations by the builder, including timelines, so it’s important to consult with your lawyer about this.


Furthermore, in order to avoid municipal lawsuits or demolition orders, as well as municipal plans in the area which could affect the value of the property. You may also wish to consult with an independent appraiser to check that all building codes are compliant before moving forward with your purchase.


Foreign Currency Transfers


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 overseas with IsraTransfer, instead of going through the bank.


Online Client Access


IsraTransfer Online Client Access is an essential tool for anyone buying property in Israel; allowing you to capitalize on advantageous exchange rates on-demand without having to wait on-line at the bank.


Inflation

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.


The Title Transfer Process


Not surprisingly, Israel has its own process for assuming official possession of your new home, including the often dreaded step of title transfer. Unlike in the US (for example) where there are actual physical deeds which pass between the seller and the buyer, in Israel this is done electronically in a digitized land registry that is available to the public over the internet. So, even if you have received the keys to your new home you're not quite out of the woods just yet until this very vital requirement is satisfied. This should be taken care of by your lawyer at the end of the process, and be sure to note, there are a few different types of registries in Israel, so make sure your lawyer checks and explains this to you.


Land Registry Extract (Nasach Tabu)


To check the ownership of a property, whether as part of the checks prior to a purchase, or just to see your name on the property, for those properties registered in the land registry, you can pay an additional small fee to order a land registry extract showing the ownership, liens, attachments, etc.


Type of Property Purchase


Obtaining a Nasch Tabu differs based on the type of property being acquired. For example, the process is different when buying a previously owned home registered in the Lands Registry (Tabu) and buying a new construction registered with the Israel Lands Administration (Minhal Merkarkei Yisrael), a Title company or other registries.


Timeline

In terms of a timeline, it may take several weeks, months or even years when buying “on paper,” between the signing of a purchase agreement and the time the buyer receives the keys. This is followed by another waiting period until the title transfer is actually recorded, and can then take several more months until it is finalized in cases of homes purchased “on paper.”


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 home 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.