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
Purchase Tax (Mas Rechisha)
Capital Gains Tax (Mas Shevach)
Foreign Currency Transfers
Moving and Setup Costs
Home Ownership Process
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:
Quality of life
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..
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).
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.
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.
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.
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.
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.
There are many different mortgage options, rates, and tracks available to buyers, which can be a source of great stress and confusion to anyone, let alone foreigners or new immigrants who are not familiar with the Israeli system. When taking out a mortgage from an Israeli bank, or other 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.
Standard Mortgage Fees
Be aware, 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 could affect whether or not the mortgage could be recovered in the unfortunate event of foreclosure. Note, the buyer is expected to pay the 1,500-3,500 NIS fee for this appraisal. There are also 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 shekels, it is important to keep these fees in mind.
When calculating your budget be careful not to forget that depending on your situation, you may need to continue paying rent or mortgage payments on your current home until your new one is ready for you.
Moving and Setup Costs
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 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 set up and meter readings. In the event that this includes connecting a gas line, it could cost as much as 10,000 NIS.
Homeowners Insurance (Bituach Bayit)
Homeowners insurance (Bituach Bayit) is very important and not to be overlooked. In fact, before you can receive a mortgage you will be required by the bank to already have both it (in addition to life insurance). Furthermore, homeowner insurance policies can differ, in some cases greatly, than those that olim are familiar with in the countries they are making aliyah from.
For example, things that may be covered in another country aren’t necessarily covered by Israeli ones. These can include push-button “Shabbat locks,” that in the vast majority of cases do not meet the anti-theft requirements mentioned in a policy in order to qualify for coverage. Conversely, due to the volatile geographic region Israel is situated in the potential for war and terrorism are unfortunate realities. The good news is that damage caused to your home by these hostile acts are insured by the State of Israel.
Clearly, insurance and types of coverage in Israel are very nuanced, so we advise speaking to a licensed professional before entering into any contract.
Home Improvements (Shiputzim)
If you decide to buy property in Israel scheduled to be constructed in the future, commonly referred to as "on paper,” the price listed at the sales office generally includes only the basic design, which frequently 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.
A Few Final Thoughts
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. Afterall, it’s part of the culture! Needless to say, 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 sitting around the table surrounded by your family, friends (both old and new), and remember – it’s worth it!
For more information, download our free e-book, The Essential Guide to Buying Property in Israel.