11 Questions Non-Israelis Must Ask Before Buying Real Estate in Israel

11 Questions Non-Israelis Must Ask Before Buying Real Estate in Israel

Foreign residents, who are interested in buying property in Israel, for residential or investment purposes should be aware of the different complexities that arise from their unique status. It is possible for a foreign resident to purchase property in Israel, but there are a number of complexities that are very important to be aware of and address.

The issues derive from three main aspects:

  1. Difficulties stemming from the fact that the buyer does not reside in Israel, which may create technical and logistical complications.
  2. Legal or bureaucratic complexities due particularly to the fact that the purchasers are nonresidents.
  3. Obstacles resulting from the fact that often the buyer does not speak Hebrew and may not have a bank account in Israel.

All these problems have solutions that can be addressed by proper preparation and attention. Below are some issues a non-Israeli resident ought to take into account when buying an apartment in Israel:

  1. How to find the right location and the right property?

There are a number of important considerations:

  • Potential increase in the value of the property. The potential can be assessed by the area and the type of asset.
  • Accessibility to highways and public transportation in particular: train, light rail and buses.
  • The residents and the type of neighborhood.
  • The demand for rental and sales in the area.
  • Is it a suitable place for the buyer to live (if there is a chance that the buyer will want to use the property for residential purposes)?

After you have decided on location, the starting point is usually finding the right real estate agent.  A professional agent must have a valid real estate license, and, needless to say, it helps if they are proficient in English. An agent’s fees in Israel range between 1% to 2% of the purchase price. An experienced agent with thorough knowledge of the property market can save you time and help you find a property that fulfills your requirements.

  1. Buy From A Contractor Or Buy a Finished Apartment?

Are you buying an apartment off -plan or under construction from a contractor, or a finished apartment? When purchasing an apartment from a contractor there may be unforeseen problems: late delivery, structural defects and financial problems of the contractor are just a few examples. There are advantages to buying an apartment from a contractor; usually the purchase price is lower (sometimes 15% less when compared to a pre-existing property). Also, you can buy the apartment in a “shell” condition and design it to fit your personal needs. A real estate lawyer will make sure any unforeseen problems are addressed in the contract.

  1. What is the quality of construction?

It is very important to hire an engineer or a qualified professional to inspect the property. The quality of construction should be examined as well as checking for any building irregularities.

  1. What is the Size of the Apartment?

It is important that you have the apartment measured to ensure that the correct specifications are recorded with the authorities, such as the Land Registry, as I have already wrote in a previous blog post.

  1. Hire a Real Estate Lawyer

Do not compromise on legal consultation; especially if you are a foreign resident who is not familiar with Israeli mentality and bureaucracy. A lawyer will guide and assist you throughout the purchasing process, from negotiation to conclusion of the transaction. A lawyer is there to protect and advance your interests.

  1. How Will You Finance the Transaction?

The property purchase price can be paid fully in cash or via a combination of cash and a mortgage. It is important to ensure that the structuring of payments under the contract is reasonable and attainable. Usually the lending bank will grant a non-resident a loan not exceeding 50% of the purchase price. Receiving approval for mortgage funding from local banks for non-residents can sometimes be a complex procedure. You should also pay careful attention to currency rate discrepancies.

  1. Are You Ready to Sign the Dotted Line?

Before signing the contract, make sure all necessary legal checks regarding the property have been carried out. For example: are there any existing property mortgages, foreclosures or anything else that may affect the transaction?. Your lawyer should perform these checks.

  1. Do You Have a Delivery Protocol?

The seller and buyer need to design a delivery protocol, specifying defects which need to be remedied by the seller. At the time of delivery you should arrange for the transfer of all utilities and rates accounts into your name, including: Arnona, water, electricity, gas.

  1. What Taxes Are Collected?

As of April 2017, non-residents or foreigners are required to pay a purchase tax of 8% of the purchase price up to 4,967,445 NIS and 10% of a purchase price exceeding NIS 4,967,445. You should consult a professional to determine whether you are eligible for any tax relief.

  1. Did You Open a Bank Account?

In recent years, requirements for opening a bank account by non-residents have become quite stringent. Under the FATCA, (the Foreign Account Tax Compliance Act) non-U.S. foreign financial institutions are required to report to the IRS any information regarding accounts held by U.S. taxpayers. Failure to do so will result in the U.S. withholding tax of 30% on most U.S.-sourced income payments to the foreign financial institution.The bank requires foreign residents to sign a waiver of confidentiality for the Bank, a statement concerning place of residence and a deposit of a sum of cash in the account. Alternatively, you can arrange for your lawyer to open a trust account to effect payments. Please note that opening a trust account will entail the signing of documents similar to those required when opening a personal bank account.

  1. Did You Save Your Receipts?

Upon a subsequent sale of the property, you may have to pay Capital Gains Tax. However, for this purpose you are entitled to deduct various expenses such as renovations, purchase taxes, legal fees and agent’s fees. It is therefore important that you retain all relevant receipts, which must be in your name and must include all relevant details relating to the property, as well as, of course, keeping a copy of all taxes paid upon the purchase.

Conclusion

It is certainly possible for a foreign resident to purchase an apartment or property in Israel. However, proper attention must be paid to all the above mentioned aspects briefly addressed here.

  1. Steinberg & Co. is a real estate law firm that specializes in representing foreign residents and assisting them at every stage of the purchasing process. We are experienced in handling the process of property purchases in Israel for non-Israelis.

We invite you to contact us and receive advice before making your next deal.

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