Israeli real estate market is on fire, with demand for apartments considerably outstripping supply in most regions of the country, with properties being scooped up by those searching for new homes as well as those hoping to take advantage of lucrative investment prospects. In recent years, a growing number of foreigners have joined Israel’s never-ending real estate boom.
There are numerous reasons why so many foreign residents are deciding to buy apartments in Israel these days: some visit the country frequently and are looking for a small living unit; others are concerned about rising anti-Semitism in their home country and seek the security of owning a second home in Israel; and still, others are primarily interested in a sound investment and are looking forward to rental income.
What makes Israel attractive for real estate investment?
Buying a home in Israel is similar to buying a home in other nations, although there are specific differences to be aware of. First and foremost, you should not be afraid to dispute the price and payment terms. Bargaining is normal. Furthermore, many Israelis believe that all foreigners are affluent, so make sure that no one takes advantage of you. Furthermore, purchasing property necessitates a plethora of paperwork, many of which are in Hebrew. You will need the assistance of an Israeli you can rely on; if you do not speak Hebrew well,
Another little-known truth is that you may buy property in Israel without physically visiting the country because the entire procedure can be completed digitally. During Covid-19, many foreigners purchased Israeli real estate without ever viewing the flat or present at the transaction. In some situations, the buyer executes a power of attorney enabling someone in Israel to represent them – generally a lawyer, family, or friend. A power of attorney must be notarized and submitted to Israel through an Israeli embassy or consulate. The Israeli representative will then sign all of the necessary paperwork, such as a caveat registration application at the Land Registry, a bill of sales, a statement that all information is correct for tax purposes, and so on. Specific paperwork may need the buyer’s signature in person, which can be done at an Israeli consulate.
Dealing with Israeli financial institutions
It is considerably easier to purchase property in Israel if you have a local bank account, which is required if you intend to take out a mortgage. To create a foreign resident account in an Israeli bank, you must have a valid passport and another picture ID and complete various documents, including a W-9 if you are a US citizen.
Lawyers representing international purchasers can establish a separate escrow account into which cash can be sent to Israel. This account can then be used to make all of the necessary payments, including taxes and fees.
If you intend to take out a mortgage and do not have an Israeli bank account, keep in mind that the bank from which you will get the mortgage may need you to create a local bank account and sign the relevant papers in person at the bank branch. In any event, you should seek the advice of a mortgage banker before finalizing the purchase of the home. Non-Israelis go through the same mortgage approval process as Israelis. However, it will most likely take longer because determining the financial stability of someone whose income and assets are based in another country is more complicated. Typically, Israeli banks give foreign residents mortgages covering up to 50% of the property’s worth, sometimes more.
Making Sense of the Sales Tax
Although anybody can buy property in Israel, foreign residents pay a more significant purchase tax regardless of nationality or religion than Israeli citizens. The purchase tax must be paid within 50 days of the contract’s signature.
While Israelis are exempt from a purchase tax on apartments valued up to NIS 1.6 million and pay between 5% and 10% on higher values, the purchase tax for foreign residents begins at 5% for properties valued up to NIS 1.29 million. It rises to 6% for the proportion between NIS 1.29 and NIS 3.88 million, then 7% for the ratio between NIS 1.29 and NIS 3.88 million.
However, if this is your exclusive residence and you do not own any other real estate, there are further advantages. In such a scenario, you will be free from purchasing tax for amounts up to NIS 1.74 million, and you will pay lesser percentages for more significant tax levels.
Because Israeli citizens pay lesser purchase taxes than foreigners, it is essential to note that an Israeli resident is someone whose primary residence is Israel. The “center of life” is defined by family, economic, and social ties, encompassing information such as family members’ permanent homes, place of employment, location of primary economic interests, participation in organizations, and so on. Furthermore, to have Israel as one’s center of life, one must spend at least 183 days in Israel during the current tax year, or less than 425 days in the previous two tax years.
Anyone who becomes an Israeli resident for the first time within two years after purchasing the flat and previous residents returning to Israel after at least ten years abroad is eligible for the purchase tax rates of Israeli residents. New immigrants benefit from reduced purchase taxes of 0.5 percent up to NIS 1.84 million and 5% on amounts above that for the first seven years. A foreign resident who purchases an apartment to become a new Israeli must utilize the flat as their primary residence.
Keep in mind that purchasing a home includes several additional costs. These include the realtor’s commission, which is usually 1.5-2 percent of the purchase price; lawyer’s fees, which are generally between 0.5 and 1.5 percent of the apartment’s value; a monthly municipal tax and building management fee, which the renter must pay if you rent the condo; and other possible costs such as a property inspection fee, foreign currency transfer fees, ownership registration fees, and proration fees.
In the recent decade, a large number of migrants have acquired the property in Israel. They can attest that it is a relatively simple process that provides them with a great deal of satisfaction in the long run, both personally and financially.