The Hidden Costs of Buying a Home in Israel: Refiguring the Budget.
Posted on 18. Jan, 2010 by DebbieG in Buying Off-Plan, General
© iStockphoto.com/Alexander Gulevich
By Debbie Goldfischer
When clients come to me with a specified budget for buying a home in Israel, I am quick to inform them that they should reduce that budget by at least 5-10% because of the various fees and expenses that they will incur in the purchase process. There are basically12 additional expenses to take into account:
1) Mas Rechisha – a purchase tax that must be paid within 50 days of signing the contract on a property in Israel. Click here to use our Mas Rechisha Calculator in English.
2) Legal fees – Israel real estate lawyers 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 his legal fees as well. (Always check whether the purchase price includes this fee or not).
3) Agent’s commission – real estate agents in Israel usually charge the buyer 1.5-2% + VAT* on the purchase price.
4) Inspection – it is usually advisable to have a professional engineer inspection of 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 1500-3000 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 will incur fees by both the ‘transmitting’ bank and the ‘receiving’ bank (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 Dollars or Pounds they do not use the Representative Rate of Exchange that you may see published by the Bank of Israel but rather a lower rate. Therefore you will need more money than you may have calculated.
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 relative to the Israeli Shekel effectively means a change in the price of the apartment.
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 (independent appraiser) to visit the home in order to determine whether or not the requested mortgage reflects the true value of the property in question. The shamai is paid by the individual taking the mortgage, not the bank. The fee can range between 500-2500 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– obviously you have to live somewhere until you take possession of your own home, so don’t forget to factor in monthly rent or mortgage payments for however many months.
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 1,000 to 10,000 Shekels.
11) Utility hook-ups – when you move into a new home or a home where previous residents never used gas, you will have to pay the gas company for connection to a gas line. This usually costs around 2000 NIS.
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 16% as of 1.1.10.
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.
The writer is a licensed real estate agent in Buchman, Modiin and the Founder and Editor of Buy-It In Israel. She can be reached at debbie@buyitinisrael.com.
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