Buying Off-Plan in Israel: Risks, Rewards, and How It Works
In the Israeli residential market, the bulk of pre-construction sales of new residential apartments (רכישת דירה מקבלן) constitutes the bulk of the new supply of residential real estate. Buying a home before it is built is a very common practice in Israel, among both home-buyers and property-investors. Buying off-plan allows the buyer to purchase the home while it is being built at lower pre-construction prices, as well as to choose the best location, orientation and layout within the building, before other buyers get to select. In addition, the capital appreciation of such pre-construction home before its completion can be substantial, especially in urban locations with limited supply of apartments. In many cases, the payments of the buyer are tied to the various stages of the construction. Other benefits include new and improved construction standards that are being implemented in the new buildings (in accordance with the Israeli Standards Institute, מכון התקנים). The later phases of these new improvements include better implementation of the seismic provisions, increased energy efficiency, improved accessibility and improved safety. The guidelines below are meant to familiarize the reader with the core benefits as well as the various core risks related to off-plan buying of apartments, and with the main protections granted to such a buyer. All the above should be well understood by the buyer before he signs a purchase agreement (חוזה קנייה). The various guidelines below are also meant to enable the buyer to better decide whether off-plan buying is suitable for him. Rewards Of Off-Plan Buying Of Apartments In Israel. Price Access – Off-plan buyers of apartments in Israel typically buy the apartments at a lower price per square meter than the later buyers of completed apartments from the same developer. Early Mover Advantage – The off-plan home-buyer has the advantage of selecting the best apartments within the project before other buyers get to select. Capital Appreciation Potential – The home-buyer stands to make large capital appreciation from the off-plan purchase, before the completion of the construction and even before the keys to the home are handed to him. A Staged Payment Structure – Rather than paying the full price of the home up front, the off-plan home-buyer pays the installments as the home is being constructed towards completion. New Construction Standards Are Implemented – All newly constructed buildings in Israel must be completed in full compliance with the current Israeli building codes and other relevant regulations, such as the relevant seismic provisions, the minimum energy efficiency and other requirements. Off-Plan Buying Of Apartments In Israel – Core Rewards For The Buyer. The answers to the following questions should enable the reader to better understand the core rewards to the off-plan buyer: What are the core rewards to the off-plan home-buyer of apartments for sale in Israel? Is off-plan buying of apartments of value to the home-buyer? What are the advantages to the off-plan home-buyer of apartments for sale in Israel? What are the pre-construction prices of the apartments for sale in Israel? What are the installments of the off-plan home-buyer of apartments for sale in Israel tied to? Off-Plan Buying Of Apartments In Israel – Core Risks And Protections For Buyers. The answers to the following questions should enable the reader to better understand the various core risks to the off-plan home-buyer as well as the main corresponding protections: What are the core risks to the off-plan home-buyer of apartments? How do the various changes to the finished apartment’s specifications affect the off-plan home-buyer? Market Value Decrease – What are the circumstances in which the market value of the completed home may decrease, before the home is handed over to the buyer? How does the risk of the developer’s insolvency before the completion of the construction affect the off-plan home-buyer? Off-Plan Buying Of Apartments In Israel – Core Protections For The Buyer. The answers to the following questions should enable the reader to better understand the main corresponding protections granted to the off-plan home-buyer: What is the bank guarantee (ערבות בנקאית) or other guarantee that the developer is required to obtain, from a bank or otherwise, prior to the start of collection of installments from the home-buyer? What is the Apartment Specification Annex (מפרט טכני) and what is its role in the purchase agreement? What is the Defects Liability Period (תקופת אחריות)? How does the registration of the completed home at the Israel Land Registry (טאבו) affect the home-buyer? Off-Plan Buying Of Apartments In Israel – Core Questions To Ask A Developer. The answers to the following questions can assist the buyer in his attempt to better evaluate the project prior to the signing of the purchase agreement. Questions To Ask A Developer Prior To Signing A Purchase Agreement. Off-Plan Buying Of Apartments In Israel – Working With A Real Estate Lawyer In Israel. The purchase agreement of an off-plan home is a long and complex, prepared by the lawyers of the developer. Thus, it is naturally written from the developer’s point of view and contains many terms and conditions that are favorable to the developer. Therefore, prior to signing such a agreement, the buyer must engage a qualified real estate lawyer (עורך דין מקרקעין). Such a lawyer will examine the terms and conditions of the agreement from the buyer’s point of view and negotiate them on the buyer’s behalf. In addition, the real estate lawyer will verify the bank guarantee or other guarantee obtained by the developer, review the Apartment Specification Annex, explain it to the buyer, review the Defects Liability Period and ensure that all the registration at the Land Registry, required by the agreement, is performed on time. Off-Plan Buying Of Apartments In Israel – Who Is It Suitable For. As explained, off-plan buying is suitable for buyers who have a long-term perspective (of about 2-4 years), who are able to pay the installments and who are buying the home for end use or for long term investment. In such cases, the off-plan product can be a very rewarding investment, as long as the buyer conducts a thorough and adequate due diligence on the developer and the specific project, and is able to absorb possible delays in the construction. Off-plan buying is not suitable for short term housing needs, for people with limited funds who are not able to absorb such risks, and for people who do not conduct due diligence on the specific project and its developer. Buying off-plan can be a great way to enter the Israeli real estate market, as long as the home-buyer has done his homework.
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