A Guide to Foreign Residents Flocking to Israel’s Real Estate Market

Rebecca Kopans
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A Guide to Foreign Residents Flocking to Israel’s Real Estate MarketCredit: Shutterstock
Rebecca Kopans
Promoted Content

There are many reasons why so many foreign residents are deciding to buy apartments in Israel these days: some visit the country frequently and are looking for a pied-à-terre; others fear growing anti-Semitism in their home country and seek the security of owning a second home in Israel; and still others are mainly interested in a sound investment and are looking forward to the rental income.

What’s different in Israel?

Buying property in Israel is not too different than in other countries, but there are certain particularities about the process that are worth noting. First of all, you should not be shy about negotiating the price and the payment conditions. In fact, that is what is expected. Furthermore, many Israelis assume that all foreigners are wealthy, so make sure nobody takes advantage of you. Also, this may sound obvious but buying property entails lots of documents, all of which are in Hebrew. If you are not a fluent Hebrew speaker, you definitely need help from an Israeli you can trust.  

Another fact that is less well-known is that it is possible to buy property in Israel without physically being in the country, since the entire process can be completed remotely. Plenty of foreigners bought Israeli real estate during Covid-19 without actually seeing the apartment or being present for the closing. In these cases, the buyer signs a power of attorney authorizing someone in Israel – usually a lawyer, relative or friend – to represent them. The power of attorney needs to be notarized at an Israeli embassy or consulate and sent to Israel. The Israeli representative will then be able to sign all the required documents, such as a caveat registration application at the Land Registry, the bill of sales, a declaration that all information is accurate for tax purposes, etc. Certain documents may require the buyer to sign in person, but this can be done at an Israeli consulate.

Dealing with Israeli banks

It is much easier to buy property in Israel if you have a local bank account, and you must have one if you are planning to take out a mortgage. To open a foreign resident account in an Israeli bank, you need a valid passport and an additional photo ID, and you have to fill out several forms, including a W-9 if you are a U.S. citizen.

Lawyers representing foreign buyers can open a dedicated escrow account to which funds can be transferred to Israel. This account can then be used for making all the various payments, including taxes and fees.

If you are planning on taking out a mortgage and do not have an Israeli bank account, bear in mind that the bank from which you receive the mortgage may require you to open a local bank account and sign the necessary paperwork in person at the actual bank branch. In any case, you should consult a mortgage banker before you actually close the deal to buy the property. The mortgage approval process for non-Israelis is similar to that for Israelis, although it will probably take longer since it is more complicated to check the financial stability of someone whose income and assets are based overseas. Usually, Israeli banks grant foreign residents mortgages covering up to 50% of the property’s value, occasionally more.

Making sense of the purchase tax

Although anyone can buy property in Israel, regardless of nationality or religion, foreign residents pay a higher purchase tax than Israeli residents. The purchase tax (mas rechisha) must be paid within 50 days of signing the contract.

While Israelis are exempt from paying a purchase tax for apartments valued at up to NIS 1.6 million, and pay between 5% and 10% for higher values, the purchase tax for foreign residents starts at 5% for properties priced at up to NIS 1.29 million and grows to 6% for the proportion that is between NIS 1.29 and NIS 3.88 million, then 7% for the share between NIS 3.88 and NIS 5.35 million, 8% between NIS 5.35 and NIS 17.83 million, and 10% for anything above that amount.

However, there are extra benefits if this is your only home and you do not own any other real estate. In that case, you will be exempt from the purchase tax for any amount up to NIS 1.74 million, and you will pay lower percentages for higher tax thresholds.

Since Israeli residents pay lower purchase taxes than foreigners, it is worth noting that an Israeli resident is defined as someone whose center of life is in Israel. “Center of life” is determined according to family, economic and social connections, including information such as family members’ permanent homes, place of employment, location of substantial economic interests, involvement in organizations, etc. Furthermore, in order for one’s center of life to be in Israel, one must spend at least 183 days in Israel during the current tax year, or no fewer than 425 days in the past two tax years.

Anyone who becomes an Israeli resident for the first time within two years of buying the apartment qualifies for the purchase tax rates of Israeli residents, as do former residents returning to Israel after at least 10 years abroad. New immigrants (olim) automatically enjoy reduced purchase taxes for a period of seven years: 0.5% up to NIS 1.84 million and 5% for any amount above that. In order for a foreign resident who buys an apartment to qualify as an oleh, he or she must use the apartment as their principal residence.

Long-term satisfaction

Keep in mind that buying property entails several additional expenses. These include: the realtor’s commission – usually 1.5-2% of the purchase price; lawyer’s fees – most likely between 0.5 and 1.5% of the apartment’s value; a monthly municipal tax (arnona) and building management fee (va’ad bayit) – to be paid by the renter if you rent the apartment; and other possible costs such as a property inspection fee, foreign currency transfer fees, ownership registration fees, and property insurance.

Plenty of foreigners have purchased properties in Israel in the last decade, and they can attest to the fact that it is a relatively simple process which brings them much satisfaction in the long-term both personally and financially.