Essential Tips for Buying a Pre-Construction Home in Israel

Purchasing a home in Israel is a significant milestone, filled with hopes, careful planning, and design decisions along the way. In Israel, purchasing a new apartment “on paper” from a contractor is a common and well-regulated process, but it comes with unique legal and financial considerations. To help ensure a smooth experience, here’s a breakdown of key terms and steps every buyer should know.

1. The Sales Specification (Mifrat)

The mifrat outlines exactly what is included in your apartment—covering materials, finishes, and fixtures. Reviewing it carefully ensures there are no surprises when you receive the keys.

2. Customizing Your Apartment

Many buyers request modifications—such as moving walls or upgrading electrical systems. Developers typically offer an official process for these changes, but they often come with additional costs and potential delays.

3. Choosing Finishes

Standard finishings are included in the contract, but most buyers opt for upgrades. Be sure to review your options carefully, as deviations from the standard offerings may impact costs and delivery timelines.

4. Closing Costs

Beyond the purchase price, buyers should budget for additional expenses, including:

Purchase Tax (Mas Rechisha) (explained above).
Brokerage Fee (if applicable).
Legal Fees for independent legal representation.
Contractor’s Lawyer Fee (a standard charge in Israel).
Minor Upgrades & Customizations.
Indexation Adjustments (Madad), if applicable.
Miscellaneous Costs, such as administrative fees and utilities setup.

5. Purchase Tax (Mas Rechisha)

Israel imposes a tax on real estate purchases, with rates varying based on factors like residency status and whether this is your first home. This tax should be factored into your budget from the outset.

6. Price Indexation (Madad)

Many new construction contracts link payments to the construction cost index (madad), meaning the final cost may fluctuate. As of May 2022, only 40% of the purchase price can be fully indexed.

7. Bank Guarantee & Buyer Protections

Israeli law mandates that developers provide financial protections, most commonly through a bank guarantee. This ensures that in the unlikely event of the contractor defaulting, your investment is safeguarded.

8. Payment Vouchers (Shovarim)

Payments are typically made using shovarim, which are bank-issued vouchers linked to the project’s financing. This structured system provides an extra layer of security for buyers.

9. Power of Attorney (POA)

A Power of Attorney allows your lawyer to handle critical legal actions on your behalf, including contract signing and property registration. The contractor’s lawyer may also require a POA for administrative tasks related to ownership documentation.

10. Delays & Early Delivery

By law, contractors must compensate buyers for significant delays beyond the agreed-upon delivery date. However, contracts often include clauses requiring buyers to take possession earlier than expected if the apartment is completed ahead of schedule.

11. VAT Adjustments

Since the apartment price includes Value Added Tax (VAT), any changes in the VAT rate during your payment schedule will affect the final amount due.

12. Walkthrough & Delivery Protocol

Before receiving the keys, buyers participate in an official walkthrough to inspect the apartment and document any defects. This is your opportunity to ensure everything matches the contract before signing off on delivery.

13. Warranty & Defect Repairs

New apartments come with a warranty period during which the contractor is responsible for fixing defects. The length and scope of this warranty vary, so familiarize yourself with your rights and the claims process.

14. Registering Ownership

Once you receive the apartment, the formal registration of ownership can take up to 18 months. During this period, buyers may need to sign additional paperwork and pay minor administrative fees.

15. Selling Before Possession

Many buyers consider flipping their apartment before taking ownership. However, most contracts either prohibit this or impose strict legal conditions that make it challenging. If resale flexibility is important to you, discuss this with your lawyer before signing.

Final Thoughts

Buying a new home in Israel is a significant investment, but with the right preparation and legal guidance, it can be a smooth and rewarding experience. Understanding the key terms and financial obligations in advance ensures you’re well-equipped to navigate the process with confidence.

For professional guidance and legal support, don’t hesitate to reach out—we’re here to help you every step of the way.