Additional Costs When Buying Property in Israel

What’s Not Included?

Congratulations, you have just found the apartment of your dreams. Your agent showed you an apartment you love; you negotiated and agreed on a price that seemed to meet your expectations. Is it a done deal? Definitely not, the buying process has just begun.

Buying an asset in Israel includes many additional costs, that can significantly increase the cost of the transaction, sometimes to an extent of 15% above the cost price. Often, the sales agent will be happy to give the impression that these costs are negligible, but they can amount to large sums of money, so it is recommended to prepare in advance for these additional costs.

Purchasing Tax

Purchasing tax is mandatory for anyone purchasing a real estate asset in Israel. The tax is imposed on the transaction and disregards any profit that may or may not occur as a result of the transaction. The payment is due within 60 days of the agreement signing. Notice it’s not the closing date, but the signing date of the agreement. As a rule of thumb, the tax rate is 8% of the property price. However, when it comes to transactions on apartment purchasing different tax brackets are related according to these three variables:

1.      Is the purchased apartment the buyer’s first residential apartment in Israel?

2.      Is the buyer an Israeli resident for tax purposes?

3.      What is the price of the apartment?

As of 16/01/2024, the new purchasing tax levels are as follows:

Single Residential Apartment or House for Israeli Residents

This is for the purchase of a residential apartment or house when the property purchased is the purchaser’s only apartment in Israel. This includes a situation where a new apartment or house is purchased instead of the existing one. Even though the existing property has not been sold yet the tax authorities give the purchaser 18-24 months to sell his or her existing apartment.

Value in NIS	Tax
0 – 1,978,745	0%
1,978,746 – 2,347,040	3.5%
2,347,041– 5,872,725	5%
5,872,726 – 20,183,565	8%
20,183,566 and over	10%

 

Additional Apartment and Non-Residents

Given the buyer of the apartment is not an Israeli resident for tax purposes and/or it is not his first apartment, the deal is taxed at a rate of 8% from the first shekel.

Value in NIS	Tax
0 – 6,055,070	8%
6,055,071 and over	10%

New Olim

If you are an Oleh, you will get a special benefit in the form of purchase tax brackets – 0.5% and 5% – depending on the purchase price, and as long as you are personally living in your apartment. The Aliyah purchase tax benefit can be used even if you already own another apartment in Israel and up to seven years post-Aliyah.

 

Value in NIS	Tax
0 – 1,988,090	0.5%
1,988,090 and over	5%

Attorney’s Fees

The cost of a lawyer’s services when buying a property in Israel can vary widely depending on several factors, including the size and location of the property, the complexity of the transaction, and the experience and qualifications of the lawyer.

Additionally, there are no contingencies when signing a contract, so all of your legal ducks need to be in a row before signing to avoid any problems down the line.

Attorney fees are not set or regulated, but they are expected to be between 0.5% – 1.5% + VAT. 

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 up to 0.5% of the apartment price according to the below table.

Value in NIS	Legal Fee in NIS
0 – 4,650,000	5600
4,650,001 and over	0.5%

The Broker’s Fee

Another fee is that of the real estate broker you work with. The broker’s role is to relay expert information and their understanding of the market to their clients, present viable options available to them, and negotiate on their behalf to get the best deal possible.

In Israel, both the seller and the buyer pay the broker’s fee, which is payable upon signing a contract.

The Broker’s Fee is usually between 1% – 2% + VAT

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 it 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 by the contractor. You will not be able to hire a different contractor to make the changes.

Financing Costs

If you’re planning to pay cash upfront, 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 mortgage adviser Fee is usually around 1% + VAT from the loan size.

Building Construction Index

This cost only applies to new apartments purchased from a contractor or a buying group. The apartment purchase’s outstanding balance is linked to the Israeli Construction Cost Index, designed to reflect the price changes of construction materials in Israel.

When someone purchases an apartment in a project under construction, the unpaid portion of the price becomes linked to the BCI. Since 2023  a new law was activated declaring, the buyer will be permitted to pay at least 20% of the purchase price on contract signing without any linkage. All future payments will be treated as follows: 50% will be linked to the BCI and 50% will not be linked. Thus, a maximum of 40% of the purchase price will be linked to the index

**The content of this article is designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction.