Purchasing a property can be among life’s most exciting moments, whether you’re buying real estate for personal use or investment purposes. The prospect of building equity, settling in the neighborhood of your choice, and even decorating are all much-anticipated aspects of property ownership.
But the process – especially in a foreign country – can also be intimidating. The multitude of forms, legal and tax nuances, and intricacies of contracts often overwhelm new buyers. So too can the many expenses that come along with your purchase, from closing costs and taxes to appliances and furnishings.
For some buyers, assessing these additional expenses in the context of their budget can be daunting. But with a team of professionals – including a highly experienced real estate agent, attorney, and mortgage expert, among others – you can solidify your financial plan well in advance and approach your purchase with greater confidence.
Beyond the purchase price of a property, there are several immediate costs to consider:
Mas Rechisha (purchase tax)
This tax is one of the major expenses in Israeli real estate acquisitions. Though anyone may buy property in Israel, foreigners are subject to a higher purchase tax than Israeli residents.
- “Israeli” in this context is defined as someone whose “center of life” is in Israel, a determination based on place of employment, family, location of substantial economic interests, as well as the amount of time spent in the country.
- Olim – new immigrants to Israel – receive further discounted rates. These rates apply one year before their immigration and remain in place for seven years after.
The Mas Rechisha must be paid via cash or a bank check within 45 days of signing the contract. Your attorney will work with you to determine the precise amount due, and will take care of submitting your payment. The amount is calculated based on the shekel price of the property as stated in the contract.
Other upfront costs include:
- Closing costs, which typically amount to more than 10% of the price of a property, though the amount can vary. Please note that the VAT (Value-Added Tax) is currently 17% and subject to change.
- Attorney fee of 0.5%-1.5% of the property value plus VAT, though there may be increased fees for foreigners.
- Real estate agent commission of 2% of the property value plus VAT.
- Developer (kablan) lawyer fees of 0.5% plus VAT or NIS 5,039, the lower of the two. Kablan fees – which pay the developer’s lawyer to register the property in your name – only apply in certain scenarios in which a property is purchased from the developer directly. Additional fees may apply to an apartment purchased for 4,642,750 NIS or above.
- Mortgage broker fee of 0.5-1% + VAT of the loan amount.
- Property and life insurance. Banks in Israel generally require borrowers to take out a life insurance policy so that the mortgage can be repaid even in the event of the borrower’s death.
- Engineer/surveyor fee. The cost depends on the size of the property and whether the report is written or oral. The typical range is anywhere from NIS 1,500-NIS 4,700.
- Bank surveyor fee. This cost varies according to the value of the property.
- Currency exchange rate. All property purchases in Israel must be paid in shekels, so foreign buyers should consider the currency rate and exchange fees.
- Furnishings and appliances. Israeli properties are generally much smaller than those in the US, so your American-sized tables, beds and dressers may not fit into your new home. Additionally, it is not uncommon for buyers in Israel to undergo kitchen renovations, even if they’ve purchased a brand-new, luxurious apartment. But regardless of whether you plan to remodel, you’ll still need to budget for appliances because homes in Israel – whether purchased or rented – typically do not include them.
As with any real estate purchase, expenses don’t cease once you close on a property. As an owner, you’ll be responsible for arnona (annual city property tax), which is determined by the property’s size and location. You’ll receive a bill every January that’s due by the end of the month, unless you’ve worked out a payment plan (usually monthly or bimonthly) with your municipality in advance.
Thankfully, the government grants discounts ranging from 33% to 100% for new olim, soldiers, single parents, victims of terror, as well as other circumstances. You can also circumvent arnona if you rent out your property; residents, not owners, are required to pay the property tax.
If you are buying an apartment, you’ll likely also have to pay va’ad habayit (maintenance fees) for the upkeep of communal spaces in residential buildings. Like arnona, tenants rather than landlords are typically responsible for this payment.
The road to home ownership in Israel may seem circuitous, but partnering with the right professionals can help you navigate the hurdles and empower you to make well-informed decisions. ■
RE/MAX Vision Owner Ariyel Maresky, and Ariella Gross, a real estate intern for the company, have authored a series of articles focused on guiding prospective buyers on the property acquisition process in Israel. www.remaxjerusalem.com +972-545-777-509