The advantages and risks of buying an off-plan apartment
That makes it very important to ensure that the project has already received a legal building permit, and that your present and future financial sources allow you to meet your mortgage payments
By DUDU LEVY REICHArtist's rendition of what the 31-unit apartment complex will look like once it is built(photo credit: TOVAH LAZAROFF)
Buying a new apartment from a contractor carries advantages and disadvantages, as well as the inevitable risks. On the one hand, the buyers can determine the design and the look in advance, unlike a second hand apartment, which they receive “off the shelf” (admittedly without having to seek out and chase after various professionals – flooring fitters, carpenters and other construction professionals). On the other hand, new apartments are often sold when they are still at the drawing and computer visualization stage, and often there is a gap between that same apartment “on paper” and what they receive when taking up residence. So how should a family that is looking to buy a new apartment minimize the risk?“They should only buy a verified product; that is, an apartment in a building that already has a legal building permit. That is the single most important piece of advice I can give buyers,” says Yuval Atia, CEO of the family-owned construction company Mivnim VeNetivim. “A young couple buying a residential apartment are unlikely to be speculators. They want to move in and live in the apartment as soon as possible, and so they need to know the accurate timetable in advance – when does construction work begin or has it already begun, when do they need to pay for each stage of construction, and when are they supposed to receive the keys. That same couple cannot afford to live in uncertainty, waiting a year and then another year.”When you come to buy an apartment from your chosen contractor and construction has not yet started, you must prepare slightly differently than when buying a newly built or secondhand apartment. In this case, the buyers are required to pay significant sums of money years before the date of entry. If they are forced to pay both the mortgage and the rent of their temporary apartment concurrently, this is not an easy financial commitment to meet. Worse still; when purchasing from a contractor, the payments are usually spread out over the construction period, so they may be required to take their mortgage in stages. Put simply, there are situations where the bank will pre-authorize the entire sum of the requested mortgage, and release the amount the buyers need at any given stage.So, where to begin? The first step is to meet with a mortgage advisor at your bank branch. Their first task will be to check the financial strength of the borrowers, to see whether they are able to spread out the loan over a long period of time. Only later will they advise the clients on the appropriate mortgage paths.“The borrowers can get pre-approval from the bank for their mortgage before they even sign a home purchase contract,” explains Avi Ifergan, director of the Mortgage Department at the Beer Sheba branch of Bank Hapoalim. “The pre-approval can constitute a ‘go/no-go’ for the transaction. The bank’s decision to pre-approve the mortgage is based on the details provided by the borrowers, such as the amount of the loan they are asking for, the property they wish to purchase, personal details and their sources of income. This is all without them having to present any documents to us. The pre-approval is valid for 24 days.”And what do they need to do after they have closed the deal with the contractor for the requested apartment?“They need to present the bank with the purchase contract and provide all the documents and guarantees that the bank requests. This is so that the bank can check the details they have provided and approve them for the mortgage. It is important to note that when purchasing a first-hand apartment, there are special guarantees dealing with the investment assurances of the buyers that purchasers must obtain from the contractor under the Law of Sale (apartments). In order to grant the loan, the bank will also have to obtain guarantees for the apartment. There are cases where the bank makes it easier for the purchasers, and in order to avoid paying both rent and mortgage payments at the same time, it allows for deferred payments of the loan fund, according to the terms of the deal and for up to three years. This means that during the deferment period, the borrowers will only pay the interest, and only at the end will they start paying the principal, the interest and the linkage differentials.”
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