Buying a new-build apartment off-plan in Israel: what to know

A large share of the apartments sold in Israel every year are bought from a developer before they're built, often called buying "on paper" (al haneyar). It can mean a lower price, a brand-new home with a mamad, and payments spread over the construction period. It also works quite differently from buying a second-hand apartment, and from buying new construction in the US or UK. Here's what to understand before you sign.

The stages, and what they mean for you

• Pre-sale. The developer is selling before a building permit has been granted. Prices are usually at their lowest, and so is certainty: plans, timelines and even the number of units can still change.
• Permit granted. The building permit is in hand and construction is about to start or has just started.
• Under construction. Work is underway. Most of the apartments are often sold by now, but you can see real progress.
• Ready to move in. Construction is finished (Form 4, tofes arba, has been issued). You're buying something you can walk through, closer to a regular purchase.

Your money is protected by the Sales Law, if you pay the right way

Israel's Sale (Apartments) Law requires a developer to secure the money a buyer pays before the apartment is handed over. In practice this almost always means a bank guarantee (arvut chok hamecher) from the bank financing the project, or sometimes an insurance policy.

• Projects are usually financed by an accompanying bank (bank melave). You pay with payment vouchers (shovarim) into the project's dedicated account, and each payment should come with a matching guarantee.
• Never pay the developer directly, in cash or into any other account. A payment made outside the project account may not be covered.
• Keep every guarantee you receive. They're what you'd claim against if the project failed.

Index linkage: why the price can go up

Most off-plan contracts link part of what you still owe to the construction input index (madad tsumot habniya), which tracks building costs. If the index rises during construction, the later payments grow with it.

A 2022 amendment to the Sales Law limits how much of the price can be linked, and many developers waive part of the linkage as a sales incentive. Ask exactly which payments are linked and from what date, and have your lawyer check how the rules apply to your contract.

"20/80" and other payment terms

Developers often advertise terms like 20/80 or 10/90: you pay 20% (or 10%) when you sign, and the rest closer to handover. This can make a purchase possible before you've sold your current home. Some things to check:

• Whether the deferred amount is index-linked or not.
• Whether the deal is funded by a developer loan (halva'at kablan). The interest is often built into the price, so compare the total cost with a standard payment schedule.
• What happens if you can't get a mortgage for the remaining amount when it's due.

Purchase tax is due right away

Purchase tax (mas rechisha) is calculated on the full contract price and is due shortly after you sign, not when you get the keys, even though the apartment doesn't exist yet. Budget for it from day one. Our purchase cost calculator estimates it along with lawyer's fees and other costs.

Delays happen: know what the contract says

Delivery dates in new projects often slip. The Sales Law entitles buyers to compensation when handover is delayed beyond a grace period, based on the rental value of a similar apartment. Read the delivery clause carefully, including what counts as a delay the developer isn't responsible for.

Use your own lawyer

The developer's lawyer represents the developer, even if you pay part of their fee (which is common, and capped by regulation). Hire your own real-estate lawyer to review the contract, the technical specification (mifrat techni) and the payment schedule before you sign. It's where most of the money is protected or lost.

Before you get the keys: inspect

Before handover, hire an independent engineer for a home inspection (bedek bayit) and give the developer a written list of defects. The law gives buyers warranty periods for defects found after handover, of different lengths depending on the type of defect, so keep documenting anything that comes up in the first years too.

Questions to ask any developer

1. Which bank is accompanying the project, and will I get a Sales Law guarantee for every payment?
2. Which payments are index-linked, and is any linkage waived?
3. What's the delivery date in the contract, and what's the grace period?
4. What's in the technical specification, and what do upgrades cost?
5. Are there parking spaces and storage rooms included, or sold separately?

This guide is general information, not legal or financial advice. Every contract is different, so have a lawyer review yours.