Lawyer’s Language: The real cost of buying a home

Lawyer Caroline Walsh answers your questions about coping with the Israeli legal system.

By CAROLINE WALSH
From near and far (photo credit: Courtesy)
From near and far
(photo credit: Courtesy)
Why is it that the most expensive item is always the one we actually want? Whether it's a pen or a pair of shoes, nine times out of ten we prefer the more costly version. Even when it comes to a house or an apartment, whatever our budget is, the property we really want is at the upper end of the price range every time. So before you commit yourself to buying that dream house or apartment at the top end of your price bracket, what else are you going to have to pay for before the property is yours?
Estate agent's fees
The agent will charge you anything from 1.5 percent to 2% of the price of the property. This is payable when you sign the purchase contract. Some agents will even join you at the signing to collect their fee.
Legal fees
These are also usually based on a percentage of the purchase price and can vary from 0.5% to 1.5% depending on the lawyer you choose, the type of property you are purchasing and the nature of the deal.
Value Added Tax is payable on both of these amounts, even if you live abroad, since the tax is charged on any services provided in connection with a property in Israel.
Acquisition Tax
A graded tax payable on the purchase price of the property. The rates are the same whether you live in Israel or elsewhere. There are preferential rates if you are buying your first residential property in Israel so on a property with a value of NIS 2 million, you would pay tax of just under NIS 25,000 at current rates. If you already own residential property in Israel, on any additional purchase you would pay just under NIS 110,000 on the same purchase price. There are special rates for New Immigrants buying a first property in Israel but even so, the tax calculated on this basis is often higher than that using the regular, preferential rates.
Finally, if you live outside Israel you will also need to take into account the fluctuating exchange rate and the costs of transferring and converting funds. In the past, property was priced in dollars but nowadays, unless you and the seller agree otherwise, you will need to pay for the property in Shekels. Since payment for a property is usually made in several installments, if you do not convert all your funds in advance, the rate you receive for your money will change with each payment. In addition, the banks will charge both for receiving foreign currency and also for converting your funds to Shekels, all of which will eat into the value of your funds.
Q: We are buying a new apartment in Netanya and have agreed a price of NIS 3,380,000 for the apartment, payable in seven installments over the next two years as the building work progresses. What else do we need to budget for?
A: In addition to the costs above, if you are buying a new apartment you should bear in mind that the price you have agreed is index-linked, normally from the date the contract is signed, and so the amount you will end up paying will be more than the nominal price agreed. The final amount will depend on which index the payments are linked to, how much this rises and over what period of time they are paid.
You will also be expected to pay between 1.5% to 2% of the purchase price (plus VAT) towards the fees of the developer's lawyer, ostensibly to cover the cost of registering the apartment in your name. The developer's lawyer will register the whole building once it has been completed and then transfer each apartment into the owner's name. You will also be required to pay towards the cost of plans for registration of the building, although sometimes this is deferred until the date the plans are actually prepared. There will also be several other costs, not all of which I have room to list here, some of which are fixed, such as the electricity, water and gas meters, and some of which depend on you, for example upgrades to the standard fixtures and fittings. The final price will be a combination of all of these.
This article is presented for your general information and does not constitute legal advice. You should obtain specific legal advice about your estate before taking (or deciding not to take) any action. Please contact Caroline for further information.© SaftWalsh 2011. All rights reserved.