Groups of people buying from kablanim to replace purchasing groups
Posted on 02. Mar, 2010 by buyitinisrael in Buying On Paper, Israel Real Estate
©iStockphoto.com/Catherine Yeulet
A new trend in the Israel real estate market is expected to gain momentum this year as new regulation and conditions for independent purchasing groups of land are being tightened by Israeli government authorities.
The new trend of organized groups of buyers purchasing from a contractor rather than an individual buyer purchasing from a contractor is likely to replace the recent growing trend of purchasing groups buying land as changes to conditions are turning the latter option less economically viable, according to the Association of Contractors and Builders in Israel. The trend of organized groups of buyers from a contractor has in recent years been a phenomenon seen mainly in the religious and haredi sectors.
On average 15 to 30 individuals organize themselves in a group to buy from a contractor in order to get significant discounts on the price of an apartment instead of purchasing as a single individual purchasing from a contractor, while also neutralizing potential risks involved in projects of purchasing groups. Apart from the advantages of guarantees and securities to which buyers from a contractor are legally entitled to, the organization of groups of private individuals purchasing from a contractor can save up to 15 percent on the buying price of an apartment by getting discounts compared with a private individual purchasing an apartment. The size of the discount is dependent on the location of the project, size of the group and stage of marketing process.
In the cities of Petah Tikva, Kfar Saba, Beer Yaacov, Herzliya and Ramat Hasharon, members of organized groups of buyers from contractors have been able to get a discount of between NIS 120,000 to NIS 200,000 on the purchase of an apartment. From the point of view of the contractor selling to a group of buyers is a commercially viable option in light of the savings in financing costs, marketing and advertising costs and savings in legal costs opposite a single buyer. Furthermore early sale of apartments to a group of buyers enables the contractor to leverage capital for new projects.
In the exclusive residential area of Buchman, Modi’in, Debbie Goldfischer, founder and editor of Buy-It In Israel, has been at the forefront of forming groups of buyers from the US, Canada, UK, South Africa and Israel, since 2004 when the area was just being built up.
In organizing the buyers in a group, Debbie managed to negotiate special terms and discounts from contractors, as well as, preferential financing conditions, which translated into average savings of 8 percent to 15 percent on the price of homes. In addition, Debbie used the advantage of the purchasing power of a group to help facilitate discounts for other services and suppliers such as lawyers, air-conditioning installations, interior designers, kitchen companies, and security and alarm services. Awareness of the advantage and success of joining a group of buyers was raised through word of mouth on the basis of recommendations, in addition to promotional presentations Debbie made overseas.
According to data compiled by the Association of Contractors and Builders, contractors sold 800 new apartments to organized groups of over 15 buyers in the second half of 2009. The figure represents 9 percent of all new apartments sold during the second half of last year. The association forecasts that this trend will continue to grow and make up 15 percent of all sales of new apartments offered by contractors this year.
Last month, Israel’s central bank announced new regulations for the provision of loans to purchasing groups buying land for the construction of new housing, which are expected to weigh on the buyers groups’s ability to get cheap lending and get better conditions. Over the past two years purchasing groups, which are organized groups of mostly private individuals have been joining up to buy land in order to build one or two buildings mainly for residential purposes amid an expensive property market, financing constraints and a general mistrust of the financial stability of building companies.
The alternative way of directly purchasing land for the purpose of construction rather than buying from a contractor or construction company has until now had the advantage of saving some of purchasers’ costs. Experts estimate that if, all saving elements exist in a project, then purchasing an apartment through a buying group could potentially save of up to 20 percent of the apartment value. However, the new regulations, which are expected to to come into effect at the end of March this year, will change advantageous bank landing conditions for buyers groups so that credit to these groups would not anymore be provided under the category of a mortgage loan but commercial credit similar to the conditions provided for contractors.
In practice, the planned changes to the conditions of credit availability for purchasing groups means that banks will have to set aside a three times larger capital allocation, which in turn means that they are likely to tighten credit for buyers groups. For ordinary mortgage loans, which until now applied for purchasing groups, banks have to provide a capital allocation of 35 percent, while the capital allocation for a commercial loan for a company is 100 percent. Furthermore, as a result of the change of categorization of loans for buyers groups from mortgage to commercial ones, banks can be expected to charge higher interest rates on the loans.
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If you are interested in joining a group to purchase a home from a contractor in Israel, please email us at groups@buyitinisrael.com or fill out the contact form below.
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