The purchase of an apartment in Israel by foreign residents may seem like a good idea at this period of time with multiple excellent opportunities.
Adv. Yitzhak Steinberg, head of the law offices of Steinberg & Co. in Jerusalem, specializes in representing foreign residents in real estate investments in Israel, with emphasis on Jewish investors from the US, answers several questions regarding real estate purchases in Israel, the process, the expectations, risks and coping.
What complexities can foreign residents expect to face when purchasing real estate in Israel?
“In my experience, the complexities can be divided into four main categories:
The first pertains to complexities attributed to the buyers not living in Israel, creating technical and logistical difficulties.
The second category involves legal or bureaucratic complexities attributed to the buyers being foreign residents.
The third category involves complexities pertaining to lack of knowledge of Hebrew as well as buyers who occasionally do not have a bank account in Israel.
The fourth category pertains to ‘ordinary’ complexities involved in the process that are not unique to foreign resident buyers.
Proper preparation helps overcome all of the complexities. Solid and thorough preparation of the process is required to enable a rapid ‘flow’ and execution of the transaction.
Can you provide an example of common challenges that you encounter when working with foreign residents?
“As a rule, the first difficulty lies in the gap in expectations.
One needs to take into account that Israel has different laws than in the US or other locations. Transactions are performed differently.
Aspects that may appear trivial somewhere else are not necessarily true for real estate transactions in Israel.
This is one of the reasons that I recommend to anyone interested in purchasing an asset in Israel to make sure that the professionals involved in the process are specifically experienced in working with foreign residents so that they can identify gaps in advance that might occur during the transaction and to make sure that the customer understands them and makes their decisions in an informed and intelligent manner, after having been provided with all relevant information.
As an Attorney, I don’t believe that I need to make decisions for the client. My role is to accurately interpret all information, to provide advice regarding the available options and the recommended option from a professional perspective but the final decision is always that of the client”.
How does this manifest in terms of legal representation of foreign residents in real estate transactions in Israel?
“I believe that the role of an advocate representing foreign residents in real estate transaction is to explain to the client from the beginning, with great patience and detail, how the process works and what they should expect. This is our practice in our office.
This is critical, since if the client fails to understand the repercussions of their decisions, and fails to take into account the differences in customs and systems of law between Israel and their country of residence, they are very likely to suffer serious harm at one stage or another in the process.
For example, when a contract is signed in Israel, the contractual arrangement between the parties is binding in every respect, and a withdrawal from the contractual arrangement might incur heavy financial compensation, in contrast with US law, in which a relatively low amount is paid to escrow upon the signing of the contract and only upon completion of the inspection and satisfaction of the suspending conditions does the transaction become valid.
Subsequently, upon execution of a transaction in Israel, all legal, physical, planning and financing reviews must be completed prior to the signing of the sales agreement. The client must understand the risks and costs involved in signing.”
Are there any important practical tips that should be remembered prior to purchasing real estate in Israel?
The first tip pertains to what is included in the price of the requested property.
If you buy an apartment ‘on paper’ from the contractor, the price is linked to the Residential Building Input index, which is designed to reflect the fluctuations in the price of various building materials, and the more it rises (and it consistently rises!), the price of the property increases accordingly.
Additionally, the price of the property is largely listed in NIS and you who do not live in Israel become exposed to foreign currency. This must be taken into account since fluctuations in currency rates creates significant exposure to you. Attempts should be made to list the price in dollars or your currency – although most Israelis will not agree to this, it can’t hurt to try.
In addition, it should be remembered that the presented price does not include the purchase tax (to date approximately 8% of the price of the apartment for foreign residents) and other incidental payments such as retainer for the contractor’s attorney (in case of purchase from a contractor), payments to the broker, to the mortgage broker, to the engineer to inspect the apartment for you, payments for connection to the electrical and water grids, etc.
Finally, the issue of spread of payments should be taken into account.
Whereas in the US or England, transactions involve two payments, in Israel, payments are spread throughout the period of the agreement. Cash flow should therefore be planned accordingly in order to not becoming ‘stuck’ in the middle and you will be required to make payments that you did not prepare for accordingly.”
What is the best way that foreign residents can cope with common challenges in transactions in Israel?
“The answer is unequivocal. Choose the right professionals to help you in the transaction.
Prioritize quality and experience over lower price and, of course, work only with local professionals you trust.
Also important is that professionals be connected in the local real estate community in Israel.
In my experience, personal familiarity with relevant players in the market can significantly facilitate the transaction and may even be a decisive factor in disputes and conflicts that arise between the parties. A well-connected party can, in many cases, resolve your problems outside of contracts and in certain cases, prevent you from being required to become involved in legal proceedings.
Finally, make sure to select a professional who can be a cultural bridge for you and to be a ‘conduit’ who provides you with accurate information required.
Our firm, for example, translates the majority of transaction documents into English but I do not know many firms that do this as part of the services they normally provide when representing foreign customers in real estate transactions.”
Meet Yitzchak Steinberg in person at the Great Israeli Real Estate Event in Brooklyn, this Sunday. Don’t miss it! To register: https://realestateisrael.org/