Buying From a Developer in Israel - Part 1

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.

Click here for part 2.

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