What’s Not Included?
Buying an apartment in Israel is not just about the price tag. There are hidden costs all buyers should be aware of. In the first part of this series, we covered two major costs: purchasing tax and the construction price index. Unfortunately there are more expenses that are not always communicated to the buyer prior to purchasing an apartment in Israel and often come as an unpleasant surprise. These include the following:
- Contractor’s legal fees
- Apartment modifications
- Utility connection
- Blueprint and registration
- Financing Costs
If you’re planning to pay cash up front, this section isn’t for you. However, if you plan to take out a mortgage, read on!
Most buyers will need help financing their apartment. In this respect Israel is no different from any other country. Most buyers take out a mortgage, either from a bank or from insurance companies. Interest rates vary depending on income, debt, down payment, and length of mortgage.
Due to recent restrictions set by the Bank of Israel, it is almost impossible to obtain financing for more than half the apartment. Banks in Israel offer a range of fixed and variable interest rates, but due to these limitations you cannot take out a loan with a variable interest rate higher than 33%. The percentage rate varies according to such parameters as loan rate, interest rate, interest track, and percentage of financing.
Apart from financing costs, loans involve additional expenses. There is a commission for opening a loan file, an appraiser cost, various listing of records and hiring the services of a mortgage adviser which we highly recommend.
It’s important to choose a loan mix that suits your needs, not just the bank’s or the insurance company’s. Choosing the right mortgage can save you tens of thousands of dollars!
The following applies to buying an apartment either from a contractor or in a purchasing group.
- Contractor’s Legal Fees
It may seem strange to someone unfamiliar with the Israeli real estate market, but in addition to the apartment price, you are required to pay the contractor’s legal fees, even though his lawyer isn’t representing you (contrary to what some realtors claim). These fees can reach thousands of shekels.
- Apartment Modifications
You looked at the blueprint and it seemed fine. It just needed a few minor changes: perhaps enlarging the kitchen, moving the washroom, or adding another door between rooms. Yet these changes, even during construction, can amount to tens of thousands of shekels. Sometimes it’s cheaper to take the apartment as is and renovate later yourself.
The apartment is built according to standards set by the contractor. Even if you want to make some changes, improve the standard or upgrade the apartment, you are usually required to purchase the materials from a specific supplier as required from the contractor. You will not be able to hire a different contractor to make the changes.
Modifications can amount to tens of thousands of shekels
It is advised to try to include your changes in the agreement and that the contractor will perform them free of charge. There are contractors that do not charge extra for program changes that are submitted in advance, especially when they do not require any additional materials or repositioning of pipes.
Changes in the apartment are extremely important. You should plan the changes as early as possible and use the services of a professional architect or an interior designer who can help you not only to plan for the changes but also prepare for them financially. Also bare in mind that if you are buying a second hand apartment you should set aside some extra cash for renovations.
- Utility Connection Costs
This is a relatively minor cost, but nonetheless you should be aware of it when buying an apartment from a contractor. It will cost you a few thousands Shekels to connect the apartment utilities to infrastructure such as electricity, water, sewage and communication lines.
- Drawing and Registration Costs
Last but not lease is the registration cost. When the contractor registers the apartment in the land registry on your name, you will need to pay several thousands of Shekels for property transfer fees. The fee covers the cost of the surveyor that measures the apartment and prepares the blueprints.
What’s Not Included?
Let’s review: we explored seven hidden costs when buying an apartment in Israel. If you’re considering buying a home, be mindful of these expenses when figuring out your budget. We hope this article helped you and will make for a smooth buying experience. If you have questions do not hesitate to contact us or ask in the comments section below.