How To: Budget Properly
Updated: Aug 27, 2020
When considering buying a home in Israel and determining your budget, it is important to identify all potential costs associated with the purchase. Please note that the numbers discussed below are approximate.
When buying an apartment, overseas purchasers will have additional expenses that can add up to 10%+ above the purchase price. These costs include:
(1) Acquisition tax for overseas buyers (and Israelis buying an investment property) is as follows:
5% up to 1,292,280 NIS
6% above 1,292,280 and up to 3,876,835 NIS
7% above 3,876,835 and up to 5,338,290 NIS
8% above 5,338,290 and up to 17,794,305 NIS
9% above 17,794,305 NIS
(There is a tax loophole for overseas buyers purchasing over the Green Line - click here.)
For Israeli residents buying a primary residence, the tax is 0% for the first 1,745,000, 3% for the next 325,000 NIS, 5% for the portion above 2,070,000 until 5,340,000, and then 8% above.
Generally, the acquisition tax must be paid within 60 days of contract execution.
(2) Attorney: usually 1% plus 17% value added tax, known as VAT, bringing the total cost to 1.17%.
(3) Real estate agent fee: 2%+VAT. The attorney’s and agent’s fees are paid upon contract signing.
(4) If you obtain a mortgage in Israel, mortgage brokers charge approximately 1% to 1.25%+VAT, depending on the mortgage size. In addition, banks usually charge a .25% application fee.
(5) Cost to convert foreign currency to shekels - reputable forex companies charge .5%.
(6) When buying on paper, there is a 5,000 NIS+VAT fee for the developer’s attorney to register the apartment in your name.
(7) When buying on paper, the unpaid portion of the purchase price will be subject to the building construction index, which is akin to the CPI index, and has fluctuated over the past half-decade from as low as under .5% to about 2% per annum.
If one purchases an older apartment that requires work, the cost for a complete gut renovation, including finishes and furnishings, will cost you minimally $2,000 per square meter.
Buying on Paper
When buying “on paper” in a new project under construction, there will be additional costs to finish your apartment.
In most projects, the standard kitchen provided by the developer does not cut it for most of our clients. You should expect to spend another $10,000 to $20,000 to upgrade the kitchen cabinets, plus you will need to buy kitchen appliances and a washing machine and dryer, which will add another $10,000 or more.
Sometimes, clients want to add extra electrical outlets or an alarm system, and possibly upgrade the central air conditioning system. Depending on how much or how little work you do, and the level of upgrades, you can expect to pay anywhere from $2,000 to $20,000.
In most projects, you will need to install light fixtures throughout the unit and recessed lighting in the kitchen, hallways and salon (living and dining room). Figure you will pay $2,000 to $5,000 for this work.
In Israel, most bedrooms do not have walk-in closets. Therefore, you will need to build wall closets in all the bedrooms. The cost for each bedroom is from $800 for standard closets to $3,000 for custom-built closets.
Many clients hire designers to help them plan the apartment, including moving walls and choosing finishes. Using a designer will cost you anywhere from a few thousand dollars and up, depending on the scope of work that the person will be doing on your behalf.
If you are purchasing the apartment to rent out, we recommend not doing any upgrades; rather, take the standard developer finishes, as the tenant brings in their own appliances, closets and furniture.
The final cost is to hook up the electric, gas and water meters. The total cost is under 1,000 NIS.
Keep in mind that we have not discussed furniture. In Israel, you have a wide spectrum of options, from Ikea to the most expensive Italian custom furniture. Figure furnishing a three-bedroom apartment will cost $10,000 and up, depending on the level of quality that you want.
Disclaimer: The article above is for informational purposes only and should not be construed to come in place of using legal counsel and hiring professionals to carry out all due diligence, including reviewing all legal and planning issues, prior to purchasing an apartment.
Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy and sell homes in Israel. To sign up for his monthly market updates, contact him at firstname.lastname@example.org.