The true cost of buying a home in Israel
When homebuyers come to me with a specified budget, I promptly inform them that they should reduce that budget by approximately 10% because of the various fees and expenses that they will likely incur during the purchase process. There are generally 12 additional items to consider when calculating the cost of buying a home in Israel:
2) Legal fees – Real estate attorneys usually charge between 0.5-1.5% + VAT on the purchase price. If you are buying a new property in Israel from a developer (or ‘kablan’), it is not uncommon for you to have to pay the kablan’s legal fees as well. (As of 4/12/2014, the maximum the kablan’s lawyer may charge is either 5,000 NIS plus VAT or 0.5% of the purchase price of the property + VAT, whichever is lower.)
3) Agent’s commission – real estate agents in Israel usually charge the buyer 1.5-2% + VAT on the purchase price.
4) Inspection – in the case of a pre-owned property, it is advisable to have a professional engineer inspect the property prior to purchase. The fee, which depends on the size of the property and on whether the report is written or verbal, usually ranges between 2,000 and 4,000 NIS + VAT.
5) Foreign currency transfers and conversions – when buying real estate in Israel, payments must usually be made in Shekels, therefore if you are using foreign currency to pay for the property, you will have to transfer the money and convert it into Shekels. This may incur fees by both the ‘transmitting’ bank and the ‘receiving’ bank (most banks in Israel charge commissions for receiving foreign currency into a Shekel account). In addition, you will be charged for converting the foreign currency into Shekels and you should bear in mind that when the bank buys your foreign currency they do not use the Representative Rate of Exchange that you may see published by the Bank of Israel, but rather a lower rate.
6) Currency fluctuations – the price of real estate in Israel is typically fixed in Shekels at the signing of the contract, therefore there is a risk (as well as a potential windfall) if foreign currency will be used to pay for the property. Any fluctuation in the value of the foreign currency that you are using, relative to the Israeli Shekel effectively, translates into a change in the purchase price.
7) Inflation – when you buy a new home from a Kablan, the purchase price is usually linked to a measure of inflation, either the C.P.I (‘Madad’) or the Israeli Building Index. This means that any outstanding amount due to the builder will be linked to the index specified in the contract. If the index increases so does the price of the apartment, however, if the index decreases, the price of the apartment will not fall since the index can never decrease below the base index listed in the contract.
8) Mortgage fees – when you take a mortgage in Israel, the bank will usually charge a fee for ‘opening a file’. This fee can range between 0.25% and 0.5%. (Like everything in Israel, this fee is negotiable!). The bank may also require a “shamai” (an independent appraiser) to determine whether or not the purchase price of the property reflects the realistic value of the home, and thus whether the mortgage could be recovered in the case of foreclosure, G-d forbid. The shamai is paid by the individual taking the mortgage, not the bank. The fee can range between 1,500-3,500 NIS + VAT. Other smaller costs may be applicable when taking a mortgage e.g. registration, Power of Attorney, etc. These may amount to a few hundred shekels.
9) Rent or mortgage payments– you will have to live somewhere until you take possession of your new home, so don’t forget to factor in monthly rent and/or mortgage payments for that period of time.
10) Moving costs – depending on how much stuff you have and how far you are moving from your previous residence, moving costs in Israel can range between 3,000 to 15,000 Shekels.
11) Utility hook-ups – when you move into a new home you need to pay for the utility hook-ups and meters and/or in the case where previous residents never used gas, you will have to pay the gas company for the connection to a gas line if you need one. This could amount to 10,000 NIS in total.
12) Home improvements and renovations – the home you buy in Israel may be perfectly suitable to bring your furniture and personal belongings and settle right into, however, in most cases, some attention is necessary before moving in. This may include kitchen upgrades, air-con installation, bathroom vanities, bedroom closets, renovations, garden and landscaping, painting, light fixtures, etc. In some cases an interior designer, architect and/or engineer may be brought in. The list of possibilities is endless; it all depends on what you need and how much you are prepared to spend.
Value Added Tax (VAT) is 17% as of 1.10.2015
The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.
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