Buying On Paper

Property Boom in Jerusalem Leads to High Demand – and Increased Risk for New Investors

25/04/2013

At last month’s Calcalist Real Estate Conference, the new housing minister MK Uri Ariel said “If you don’t have money, you don’t have to live in the center of Israel. Not everyone has to live between Gedera and Chadera!” What this means to you is that the newly formed government is signaling clearly that housing prices in Jerusalem and the Tel Aviv areas will continue to rise. They are saysing, in other words “we have no intention of taking any action to stop the demand from outstripping supply… cheap apartments will be constructed up in the galil (like the new charedi project in Har Yona, in nazereth or in Tiberias.)

New projects like Achuza, Pisgot Yerushalayim, Schneller, and the new Givat Ze’ev have all seen incredible demand for the apartments well before the first shovel of dirt gets moved out of the ground before construction can begin. The Israel Statistics office documented this month a 12% rise in demand for apartments in Yerushalayim over the past year.

Anyone thinking of buying a real estate investment in Eretz Yisrael should consider the advantages of buying “on paper.” By purchasing an apartment from the developer before construction has begun, you get a brand new modern apartment in pristine condition for a better price, and can often custom design it so the layout is just the way you envisioned it. That being said, buying on paper also comes with its own set of complications if not done properly.

Here are a few vital points to consider before buying on paper:

“What’s a few hundred thousand between friends?”

 Obviously, you would never lend $10,000 to someone you barely knew without some sort of guarantee that you’ll see it again someday, right? Unless you have plenty of extra money to spare and a few hundred thousand Dollars is chump change for you, never ever give your hard earned savings to a developer without getting a bank guarantee that your deposit is safe- no matter how attractive the deal sounds!

 Remember the “Heftsiba fiasco” in Beit Shemesh seven years ago? People lost many millions of shekels because they gave the “well-known” developer money backed by his reputation alone- and they went bust. (Side note; he’s already out of jail, and investors still haven’t gotten their money back!)

 Some more advanced investors buy a certain amount of meters for a substantial discount before the final permits are ready. Thus, the developer has no ability to guarantee the money.

 Before you enter into such an arrangement, and if you understand the substantial risks you are taking in exchange for the higher return, make sure you are getting assurances and securities of value. At our firm, we have relationships with top attorneys in this field, and work hard to ensure our clients get a good partnership agreement plus security assurances before the monies are released to the developers if the project. Better safe than sorry!

 “1+1+=? know your costs”

While deciding how much you can afford to spend on your apartment, it’s important to be aware of the many hidden expenses that you’ll have to include in your budget. When buying on paper you’ll have to take into consideration the cost of seller’s attorney in addition to the cost of your own lawyer (as mentioned above), mas rechisha (purchase tax), the bank guarantee fee, real estate agent and mortgage broker fees, and the cost of inflation for building materials. That’s right, there’s a little known clause in Israeli real estate contracts called “madad” that links your final price to the rate of inflation at the time the project is finished for all building materials. Over the course of the 3-4 years it takes to finish construction, the madad can go up as much as 9-12%. Altogether, you may end up paying as much as 19% more than the final price of the apartment! That can equal as much as 456,000 shekels ($120,000) in hidden costs on a regular Jerusalem apartment selling for over 2 million shekel. There can be significant financial penalties or worse if you can’t cough up all these fees by the time of closing.

“Better Safe than Sorry”

In the United States and England, the concept of a Buyer’s Agent has existed for years, but has gained tremendous popularity in recent years, given the volatile real estate market. For those unfamiliar with the concept, a Buyer’s Broker or Buying Agent is essentially a liaison between the buyer and the real estate agent and sellers.

Shia Getter founded Israel’s first professional Buyer Brokerage service. As the advocate for the buyer’s best interest, navigating the murky waters of the Israeli real estate market, banking and legal systems, and government bureaucracy, in addition to dealing with real estate agents, price negotiations and selecting the right location and quality.

Clients using the Shia Getter Group know that they are in good hands. Knowing that you aren’t going to be taken for a ride takes off much of the pressure of the decision to buy an apartment in Eretz Yisrael. Yidden from around the world are now able to sleep better at night knowing that they have someone in Yerushalayim who has their interests – and only their interests – in mind as they navigate the sometimes rough road of buying their own “daled amos” in Eretz Yisrael.

Shia Getter is the CEO of the Shia Getter Group, a full-range real estate services firm in Jerusalem catering to the Anglo-Charedi Community. He is a noted expert, columnist, and author of Everything You Need to Know about Buying Real Estate in Israel (Feldheim 2014). He and his professional team are Israel’s one and only true seller’s and buyer’s brokerage. They provide a unique service by managing and maintaining your apartment and being completely responsible for the entire buying or selling process.

For more information and to schedule an appointment, call Sarah at 077.234.6011 or email sarah@thegettergroup.com.

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