Reprinted with permission from israelatlast.com.
www.israelatlast.com/single-post/2017/07/27/Tips-for-Buying-from-a-Developer-in-Israel—Part-2
1. The Contract – Get to Know It
A contract is a critical part of almost any transaction. However when it comes to buying something that doesn’t physically exist yet (or only partially exists) the contract takes on a great deal of added importance. This is because, among other things, when buying an existing property the payment usually takes place over a relatively short period of time, and, critically, you can see what you are buying right in front of you. You can see the layout, the color of the paint, the floor tiles, etc. This is not the case when buying from a developer ‘on-paper’.
In these transactions, the contracts are very long and detailed, and include many things, including:
– Payment Schedule (Luach Tashlumim) – This lays out, usually in percentage terms, when and how much needs to be paid to the builder. The timing of the payments will usually be according to the progress of construction, however sometimes the schedule can be negotiated to become more suitable for your cash flow needs.
– Technical Specifications (Mifrat Techni) – This lists the materials and finishes that the builder is planning to use during construction. The list should be detailed, and includes things such as types of internal and external doors, kitchen cabinets, material and size of floor tiles, number of electric sockets, etc. The level and quality of finishes can vary greatly from builder to builder, so it is worth becoming familiar with what you will be getting.
2. Buyer Protection – Find out What Type is Being Offered
The law (Chok Mecher) allows for various methods of protecting the buyer. These laws were strengthened after the collapse of the publicly traded Heftzi-Ba Plc back in 2007, whereby the company went bankrupt without having issued bank guarantees to all of its buyers – which was against the law.
It goes without saying that the type of protection is a crucial issue that your lawyer will need to check and clarify. Very often the bank that is financing the project will issue a bank guarantee (arvut bankait) for each sum that you pay to the builder. You will be given a booklet of payment vouchers issued by the relevant bank at the beginning of the process, and payments are usually made directly through your bank account using these vouchers.
Make sure your lawyer explains to you the type of protection you are getting from the builder.
3. Repairs After Taking Possession – Know Your Rights!
After you have taken possession,, the builder is still responsible for the working order of the property. There are two periods of responsibility laid out in the law:
(i) Bedek – lasting between one and seven years after taking possession, and
(ii) Achrayut – lasting for three years after the Bedek period has finished.
The difference between the two above periods is that during the first period, strictly speaking you do not need to provide proof that the builder is at fault in order for the builder to be responsible (it is enough that damage/non-functionality exists), whereas in the second period you would need to prove that the problems are due to the builder not doing his job properly.
In order to get a better understanding , below are the bedek periods as laid out by law (for a home purchased after 6th April 2011). There are nuances to each category, so be sure to consult your real estate lawyer for any specific issues:
Metal and woodwork – 2 years
Flooring and interior cladding – 2 years
Machinery and boilers – 3 years
External works (including paths, fences, parking space, etc) – 3 years
Thermal insulation – 3 years
Plumbing – 4 years
Sealing and waterproofing – 4 years
Cracks wider than 1.5mm – 5 years
External cladding – 7 years
Other issues – 1 year
Note that for problems relating to the stability of the structure of the building, there are different rules, and a much longer guarantee period.
Understanding the above points, as well as the ones we made in Part 1, will help you greatly when thinking about buying from a developer in Israel.
Israel is a growing country. With one of the highest birth-rates in the developed world, as well as ever-present immigration, the need to cater for the growing population fuels a constant need to build new homes. Indeed, insufficient new building is agreed to be one of the main factors, if not the main factor, that has contributed to the large rise in real estate prices in Israel over recent years.
For many buyers, both foreign and local, buying in a new development in Israel from a builder has several attractions. Firstly, the earlier you buy prior to the home being ready the better the price you can usually obtain, and with real estate prices in Israel so high, this is one way that buyers can get better value for their money. Also, there is the lure of receiving a brand new previously untouched product. Furthermore, if buying early enough, you can choose certain aspects of the home to be perfectly suited to your tastes, e.g. location of internal walls, room sizes, floor tiles, kitchen cabinets, internal layout, etc – things which would be far costlier when buying an existing property.
Of course the regular risk-reward relationship exists here too, and there are many things that need to be taken in to account when buying from a developer. Therefore, in this two part series, we will be talking about some of the main points that need to be known and understood when making your decision to buy in new developments in Israel:
1. Home or Investment ?
Before getting in to the finer details, it is worth briefly mentioning the above, seemingly obvious, question that you need to ask yourself – the answer to which can, and should, have a large influence on the decision of where and what to buy, as the set of considerations differs greatly between them. This is actually true both when buying from a developer and when buying a second-hand property.
If one is buying a home (or holiday apartment) then things like community, schools and existing familiarity with the area feature high on the list of criteria. If buying as an investment then there are also things like rental yield and future price appreciation that will be very high on the list. The latter case should also lead you to having an open mind as to where in the country to buy, as the best investments may well be outside the regular cities that anglos are familiar with (think North, South, etc).
2. Who is the developer ?
By far one of the most important questions that needs asking is about the experience and reputation of the developer. There are many different developers in Israel, coming in all shapes and sizes, from publicly traded Israeli real-estate companies to smaller local family businesses. It is important to gauge all kinds of factors, such as how many similar developments have been undertaken, is the developer the one doing the physical construction or are they simply putting the deal/project together and hiring the actual builders in the process (in which case who are the actual builders?), in how much of a timely manner have they completed previous projects, what has been the level of the finishes in previous projects, etc.
There are no hard and fast rules as to the correct answer here – there have been cases of public companies going bust, of industry-leading names doing shoddy construction (such as the ‘collapsing balconies’ case a few years ago), and of small local developers producing excellent high-quality buildings. Therefore, make sure that you know who you are dealing with!
3. Get Your Own Lawyer
With developers requiring the buyer to pay for the developer’s own lawyer, the buyer will often look to save money by using that same lawyer to represent him/herself in the transaction. This is a bad idea. It is highly recommended to bring in your own lawyer, one who is unrelated to the developer and who will have solely your interest at heart. With so many details and nuances involved in the deal (as will become apparent in part 2), this is a critical piece of advice, whereby the extra money spent now (as you will anyway have to pay for the developer’s lawyer!) can save many times that amount in the future.
Read more, about how Meatzvim can help you when buying from a developer in Israel. Click here to read more or contact us directly.
