In many instances, people residing overseas and defined as foreign residents or non-residents wish to purchase an asset in Israel and in particular apartments, for residential or investment purposes.
Purchasing an apartment in Israel by a foreign resident is certainly possible, but there are several complications which it is very important to acknowledge and overcome.
The complications are due to three principal aspects:
- Complications arising from the fact that the buyer does not live in Israel (and often only comes to Israel once, or even not at all), which creates technical and logistical difficulties.
- Legal and bureaucratic complications, arising specifically owing to the fact that the buyer is a foreign resident.
- Complications arising from the fact that often the buyer does not speak Hebrew and at times also has no bank account in Israel.
All these problems do have solutions and can be resolved by proper preparation and directed attention.
In this paper, I will review aspects pertaining to selecting an asset, inspecting it, non-resident purchase tax, mortgage issues, new immigrants to Israel (Olim) (as compared with foreign residents), and remote execution of the transaction.
Everything contained herein is based on our firm’s vast experience in professionally assisting many transactions of this type, in recent years.
Non Resident Purchase Tax in Israel
A foreign resident, as compared with an Israeli resident, does not benefit from the lower tax brackets, even if s/he has no apartment in Israel. S/he will pay like any Israeli resident who already owns an apartment. The purchase tax payable by a foreign resident is calculated according to the apartment’s value. The foreign resident tax brackets, current for any transaction of purchasing an apartment or house, executed between 17th January 2016 and 15th January 2017, will be:
- Up to 4,896,615 NIS – 8%.
- Above 4,896,615 NIS – 10%.
New Immigrants to Israel (Olim)
Anyone deciding to immigrate to Israel within several months from the date s/he purchased an apartment or house, is entitled to a special new immigrant purchase tax benefit, or to pay the purchase tax rate payable by an Israeli resident (at times, the purchase tax rate payable by an Israeli resident who has no other apartment is lower than the purchase tax rate payable by a new immigrant).
Choosing an Asset
When deciding to purchase an asset (an apartment, house, or any other real estate property) in Israel, several considerations should be taken into account:
- The property’s potential value appreciation. This may be estimated according to the property’s location and type;
- Accessibility to transport routes in general and public transportation in particular: train, light railway, bus, etc.;
- The character of the tenants and neighborhood;
- Existing demand in the market for renting and/or selling the asset;
- Suitability of the location as a residence for the buyer (if there is a chance that the buyer may wish to make use of the asset for residential purposes).
Inspecting the Property
Before every purchase, it is very important to carry out several inspections:
- In Israel, approximately 20% of assets contain construction deviations. That is to say that about one fifth of the assets have construction that was carried out over time deviating from the issued building permit. It is important to review whether the asset is built in accordance with the building permit, and if there is any deviation, what is the extent of the deviation, and whether a retroactive permit may be obtained for it;
- Checking that the asset is not encumbered or subject to an attachment order or a lien;
- Checking that the asset is legally suitable for residential purposes (and not, for instance, that it is a storage room or laundry room which over the years has been unlawfully transformed into a residence);
- Checking that there are no legal problems in transferring title to the buyer.
Additional reading on inspections which should be conducted before purchase.
Foreign Resident Mortgages
A non-resident is permitted to and can obtain a mortgage in Israel, but it is important to realize that the banks conduct themselves vis-à-vis foreign residents with an extra degree of caution. The proceedings vis-à-vis the bank could take significantly longer (as compared with an Israeli resident seeking a mortgage). To obtain a mortgage, the bank will demand, inter alia, proof of the lender’s assets and income – expenses balance.
The bank could demand many documents and ask many questions. At the end of the process, the bank may agree to provide a mortgage at a lower lending rate (for instance, only 50% of the value of the property).
The right type of representation can help and facilitate obtaining a mortgage on more favorable terms.
Remote Performance of the Transaction
In Israel the bureaucratic proceedings vis-à-vis all the authorities (including the Land Registration Bureau (the Tabu), the Israel Lands Administration, and the majority of banks) are in Hebrew.
The transaction can be performed without coming to Israel, but that will require the process to be meticulously executed.
Documents will have to be signed before an Israeli Consul overseas. A great deal of documents may be signed by the buyer’s attorney-in-fact in Israel (a lawyer or other agent) on the buyer’s behalf, but there are some documents which the buyer will be required to sign personally.
The principal documents which the buyer will be required to sign (in person or by his attorney) throughout the process are:
- Executing a contract;
- Executing documents for the tax authorities;
- Executing the mortgage documents (if the buyer is taking out a mortgage to finance the purchase of the asset);
- Executing the Tabu registration documents.
Conclusion
It is indeed possible and even expedient to purchase an apartment, house or other property by non-residents in Israel. If done, it is advisable to do so properly and pay attention to all the abovementioned aspects.
Our firm possesses a vast of material experience in advising and handling realty asset purchases in Israel for foreign residents. We will accompany your transaction professionally and ensure that you do not enter into a transaction which cannot be completed. You are invited to contact us for further advice before carrying out any such transaction.
Note:
This article provides general and preliminary information only and should not be construed in any event as legal counseling and/or as a substitute for legal counseling in respect of any case and its circumstances.
The above should not be relied upon without consulting with an Israeli lawyer before taking any action or making any decision. The above is true as of the date of its composition, and its veracity may change from time to time.
Advocate Tali Kessler is a partner at Rechnitz, Kessler & Co. Law Office & Notary engaged in the fields of commercial law, real estate and land taxation.
Distribution and/or duplication and/or photocopying of this document and/or part thereof without permission are prohibited.
The contents of this document should not be construed as counseling and/or as a professional opinion of any kind.
