Even those with experience buying a home elsewhere may find the Israeli experience surprisingly different. Here are some helpful tips you should keep in mind when getting started.
- Letter of Intent – Many sellers in Israel will insist that you sign a term sheet or letter of intent (zichron dvarim) after the initial handshake. This may seem harmless, but it’s not. In Israel, a simple letter of intent can become a binding contract and may even trigger real-estate transfer taxes… So, assuming you’re not ready for commitment at that level, you should consult with a lawyer before signing one of these.
- Purchase Tax – You will have to pay real-estate purchase tax (mas rechisha) soon after signing the purchase contract. Purchase tax is calculated based on tax brackets that vary according to the specific deal and the individual buying the home. WARNING: This tax can fluctuate significantly depending on circumstances. You should check this carefully when determining your budget.
- Linkage – The price you agreed with the seller may be linked to the Israeli consumer or construction price index (i.e. you may end up paying more than agreed…). This is especially true when you buy a new home directly from the contractor who built it (kablan). Depending on the price of the home and the time it takes the contractor to build and deliver it to you, the linkage differentials (hatzmada) can be significant.
- State Leases – Many “home owners” in Israel don’t actually own their home… Over 90% of the land in Israel is legally owned by the State (or the JNF) and so in many cases people lease their homes from the State under long-term leasehold agreements (choze chachira) and do not actually own them. Often enough these leases are fully prepaid for 49 or even 98 years and so can feel very much like actual ownership; however, they are not exactly the same and you should understand the differences before buying one. In general, most Israelis prefer private ownership but would not turn down a deal just because it involves a State lease.
- Title – It can take months to obtain legal title on a home in Israel even if you’ve already paid for it. This of course runs contrary to common sense which generally dictates that one should not pay for something before getting it, all the more so when that something is very expensive. Unfortunately, this is how real estate transactions are done in Israel and it is very difficult to structure things differently. The gap between final payment and title conveyance adds significant risk to Israeli transactions and should be handled carefully by your lawyer.