Everything Foreign Residents Need to Know about Buying an Apartment in Israel – JD Supra

Posted By on August 12, 2022

Israels housing market has been recording dramatic price hikes for a little over a decade. This is a relatively short time frame relative to price hikes of such magnitude. For example, according to the housing price index published by the Israeli Central Bureau of Statistics, housing prices rose last year by the cumulative rate of about 15.2%. In other words, if the price of an average apartment in Israel was about ILS 1.081 million in 2010, by 2020, the average price rose to about ILS 1.58 million. Due to the pace of population growth in Israel, a relatively small country, there is a constant demand for housing, mainly in the central Dan region. Therefore, housing prices are especially high.

These price hikes indeed make Israeli real estate attractive, but they also make every transaction more significant. Therefore, it is imperative buyers not only find the right property for themselves, but also gain an understanding of the stages of purchasing real estate in Israel, Israeli real estate laws, and the most important aspects of real estate transactions in Israel.

When buying or selling a residential apartment in Israel, two main types of taxes apply: betterment tax (also known as capital gains tax) and purchase tax. Unless the parties agree otherwise, the buyer of the apartment pays the purchase tax, while the seller of the apartment pays the betterment tax.

The purchase tax rate that applies to the buyer during a real estate transaction depends, inter alia, on the number of apartments he owns at the time of purchase. If this is his only apartment in Israel, the buyer will benefit from an exemption up to the price bracket specified in the Real Estate Taxation Regulations. Above that price, the buyer will pay graduated tax according to that defined in the regulations. If the buyer has more than one apartment, then he has no entitlement to this benefit and will pay a higher property tax rate according to that specified in the regulations.

As stated, if the purchased apartment is the buyers only apartment and he is a resident of Israel, he can benefit from the exemption and the lower purchase tax brackets. On the other hand, if the purchased apartment is the buyers only apartment and he is a foreign resident, then he is not entitled to the exemption or to lower purchase tax. Therefore, he will pay purchase tax at the tax brackets applying to the purchase of a second apartment.

Correct to date, there are two purchase tax brackets that apply to foreign resident purchasers of an apartment in Israel. 8% purchase tax will apply to the portion of the purchase price up to ILS 5,525,070 and 10% purchase tax will apply to any sum exceeding the first ILS 5,525,070.

If you are buying an apartment on paper from a contractor, it is extremely important to retain professionals during the negotiations stage. They will advise you on the apartments specifications, planning, and how to make modifications according to your needs. If you are buying a second-hand apartment, it is important to retain professionals for the purpose of conducting preliminary inspections. These include identifying deficiencies in the apartment and its various systems, examining the need for renovations, measuring the land, checking for building deviations, etc.

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Everything Foreign Residents Need to Know about Buying an Apartment in Israel - JD Supra

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