levinlawoffices.co.il

Issue 37 – April 2012

Aviva — Wed, 18 Apr 2012 09:03:50 +0000

In This Edition

Welcome
Featured Article – Urban Renewal the Israeli Way
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For Further Information

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Welcome to Israel Real Estate Law Insights

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Welcome to the latest issue of the Israel Real Estate Law Insights, published by Nicole Levin Law Offices, experts in all aspects of real estate law in Israel. You are receiving this newsletter because you signed up for it on our website or because you filled out a form at a housing fair. Our newsletter focuses on the legal aspects of buying, selling and renting property in Israel.

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Urban Renewal the Israeli Way

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Read the complete article on our website:

http://levinlawoffices.co.il/?p=1213

Legal Vocabulary

“Shimur” – The preservation of an historical building. “Tama” – This is an abbreviation for the words “Tochnit Mitar Artzit” which means a national zoning plan.

Tip of the Month

When purchasing property in Israel it is important to check out if the building falls within one of the three projects set out in my article. This can affect the future price of the property.

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For Further Information

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To receive a free copy of Nicole Levin’s popular ebook Essential Things You Need to Know About Buying Real Estate in Israel please send a blank email to:

mailto:ebook@levinlawoffices.co.il

Additional information can be found at:

http://www.levinlawoffices.co.il/free-stuff/

Further interesting articles can be found at:

http://levinlawoffices.co.il/articles/

Previous newsletters can be found at:

http://levinlawoffices.co.il/newsletter/

If you have any further queries please feel free to make use of the Contacts page on our website:

http://www.levinlawoffices.co.il/contact-us/

Urban Renewal the Israeli Way

Aviva — Tue, 17 Apr 2012 10:27:34 +0000

Urban renewal projects are one of the newest trends to hit the Israeli real estate scene. As several major Israeli cities have no more room to grow, municipalities have allowed older buildings to be renovated, giving the city a “facelift” and enabling new apartments to be added to existing buildings. Additionally, there is a concern that many buildings constructed before 1980 will be unable to withstand earthquakes. Very few apartment buildings are owned by a single entity, and since the majority of apartments within buildings are privately owned, the burden to renovate buildings in order to strengthen them in the event of a major earthquake primarily falls on the individual apartment owners. Renovations are so costly that most people cannot afford them, yet despite the danger, there are very few national projects to strengthen buildings against earthquakes. There are also many buildings built before the 1930s that have been declared historical buildings and slated for preservation. The owners of these buildings may not demolish and rebuild the building, but must adhere to strict rules regarding the renovation and strengthening of the building. Therefore the government and the municipalities have an interest in promoting urban renewal projects, such as “Tama 38”, “Pinui Binui” and preservation of historical buildings.

“Tama 38” is a national zoning plan whereby a contractor takes upon himself to renovate a building at his own expense. In exchange for covering all costs of renovations, building permits and necessary taxes, the contractor has the right to build additional floors to the building and sell the apartments built on these floors. The apartment owners get a modernized building, strengthened against earthquakes, as well as at least one room added to their apartment. In some cases porches, storage rooms, parking spaces even elevators may be added on as well, thus enhancing the building’s value. While this sounds like a win-win situation for all, very few projects of this sort have gotten off the ground. Changes were needed in the various tax laws in order for these projects to be economically viable for contractors. Also, the land law also needed to be revised to prevent a situation in which an entire project could be shelved due to the objections of even one apartment owner in a building. These changes have now been implemented, and now that the obstacles have been removed, hopefully we will see more “Tama 38” projects in the future. Apartments will be added to the market and buildings will be safer as well.

“Pinui Binui” projects are ones in which apartment owners are temporarily evacuated from their apartments, so that the buildings may be demolished and rebuilt. The owners then return to new apartments in the new building. The contractor pays all costs for demolition, construction, relocating apartment owners and renting their temporary homes during construction. In exchange, the contractor adds new apartments in the building which he can sell in order to make his profit. As with “Tama 38”, the value of the apartments in the building is increased and the owners receive a new, larger and safer apartment than what they previously had. This beautifies the city and adds more apartments to the market.

Why is the government getting involved in the addition of new apartments? The answer is simple economics. More new apartments on the real estate market means that apartment prices go down and this is what the government wants. However, prices are also influenced by factors such as location, interest rates, mortgage availability and unemployment as well as by supply and demand and the government would be well advised to give a thought to those factors if it wants to achieve its goal of lowering the prices of apartments.

The third urban renewal project is the preservation of historical buildings. An historical building is one built before the 1930s that has special significance, for example an historical event took place or well-known figure resided there. The building may also have a unique architecture. Some buildings declared historical in Tel Aviv are the Bauhaus buildings, the home of poet Chaim Nachman Bialik and the home of Tel Aviv’s first mayor, Meir Dizengoff, where David Ben Gurion declared Israel’s statehood on May 14, 1948. Once a building is declared historical, it must be renovated in accordance with municipality directives, in order to preserve the building in its original form. These projects include strengthening the buildings against earthquakes and the construction of parking under the buildings. While additional construction is not permitted in some cases, if additional floors can be built in such a way as to enhance or complement the original building it is allowed. One such example is the building owned by early Zionist leader, Menachem Ussishkin on the corner of Allenby and Hayarkon Streets in Tel Aviv. The cost of renovation falls on the owners of the building which is why many such buildings are currently for sale. While these renovations are more costly than those of modern buildings, the end product is well worth the investment as the neighborhood is enhanced with a real “trendy factor,” which increases property values. More importantly, the renovations help preserve our national heritage.

Issue 36 – December 2011

Aviva — Wed, 07 Dec 2011 09:43:08 +0000

In This Edition

Welcome
Featured Article – Recent Changes in Israeli Land Taxes – Update December 2011
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For Further Information

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Welcome to Israel Real Estate Law Insights

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Recent Changes in Israeli Land Taxes – Update December 2011

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As part of an attempt by the Government to lower the prices of apartments in Israel or at least to prevent further price rises, the Ministry of Finance has enacted a series of changes to the existing laws governing purchase tax and capital gains tax. Below please find a list of a few of the changes:

Read the complete article on our website:

http://levinlawoffices.co.il/2011/12/06/recent-changes-in-israeli-land-taxes-update-december-2011/

Legal Vocabulary

“Ptor Memas Shevach” – Exemption from Capital Gains Tax.

Tip of the Month

Before buying or selling property you should sit down with your Israeli real estate attorney and do some tax planning. You need to find out if you can get an exemption from tax and what will be the effect of this transaction on the tax in future transactions.

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Subscription Information

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For Further Information

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To receive a free copy of Nicole Levin’s popular ebook Essential Things You Need to Know About Buying Real Estate in Israel please send a blank email to:

mailto:ebook@levinlawoffices.co.il

Additional information can be found at:

http://www.levinlawoffices.co.il/free-stuff/

Further interesting articles can be found at:

http://levinlawoffices.co.il/articles/

Previous newsletters can be found at:

http://levinlawoffices.co.il/newsletter/

If you have any further queries please feel free to make use of the Contacts page on our website:

http://www.levinlawoffices.co.il/contact-us/

Recent Changes in Israeli Land Taxes – Update December 2011

Aviva — Tue, 06 Dec 2011 07:40:27 +0000

Below please find a list of a few of the changes:

Change in the purchase tax. Purchase tax for single apartments was lowered while purchase tax for an additional apartment was raised. This helps young couples and families purchasing a home (where this is going to be the only apartment they own), as it greatly reduces the purchase tax they will have to pay. Indeed, if the apartment is less than 1,350,000 NIS there won’t be any purchase tax to pay at all. However, anyone who already owns an apartment and would like to invest in real estate by purchasing an additional apartment then they will pay a much higher purchase tax. Indeed, if the additional apartment that they buy is a 1,000,000 NIS they will pay 5% of this – a whopping 50,000 NIS!
Ways to get around the extra tax: In the case of the purchase of an additional apartment where the purchase will be higher there are a few ways to lower the tax. One way is to register the new apartment in the name of someone else who does not own another apartment in Israel. However, should this person wish to purchase an apartment in the future he may then have to pay the higher purchase tax since this second purchase will not be his only apartment. This purchaser will have to unload the first apartment somehow. Another way to get around the tax is to separate the worth of items included in the apartment which can be dismantled, such as air conditioning, cabinets etc. from the price of the apartment. This will lower the price of the apartment thereby lowering the purchase tax.
Change in Capital Gains Tax. In all real estate transactions the sellers are liable to pay capital gains tax. In the case of residential apartments there are several types of exemptions from this tax under the previous law. If a person owns more than one apartment then he can sell one of his apartments with an exemption from capital gains tax every four years. If the seller has only one apartment then he can get an exemption from capital gains tax once every year and a half. This means that someone (who only has one apartment) can buy an apartment, sell it and get an exemption and then buy another apartment instead of the one he just sold and sell that apartment in a year and a half and get an exemption from capital gains tax. There are also exemptions for the sale of apartments gotten through inheritance, giving apartments as gifts between close family members, the sale of two small apartments in order to buy one large one etc. Under the new law (which will be in effect for a period of two years unless extended) sellers will be able to get an additional two exemptions in addition to any exemptions they could have gotten under the existing law. This means that people with multiple apartments can sell some or all of them and get exemptions from capital gains tax for these sales without having to wait the four years between sales with exemptions.
Limit to the exemptions from capital gains tax: The additional exemptions in the new law are limited to a price of 2,200,000 NIS. This means that if the price of the apartment sold is less than 2,200,000 NIS then the seller will get a full exemption from the capital gains tax. If the price of the apartment sold is more than 2,200,000 NIS then the seller will get an exemption from the capital gains tax for the amount of the price up till 2,200,000 NIS and he will be taxed for the amount of the price above 2,200,000 NIS.
What happens to the exemptions under the previous law: Sellers can use the exemptions from capital gains tax that were in effect under the previous law.
Tax planning: The changes in the law make it necessary for sellers to do some tax planning with their real estate attorney. For example, if a seller has an apartment that is worth 3,000,000 NIS and an apartment that is worth 2,000,000 NIS he can get an exemption now for both apartments without waiting four years between sales. He should use the previous law for the exemption from the capital gains tax for the apartment selling for 3,000,000 NIS because the previous law did not have a price limit and even apartments that sell for more than 2,200,000 NIS can get a full exemption from the capital gains tax under the previous law. For the apartment selling for 2,000,000 NIS the seller should ask for the exemption under the new law. This is just a simple example of how a little tax planning can save a lot of money.
Procedural changes: The new law has brought with it some procedural changes. One of the most prominent changes is the fact that in a deal where the seller is not entitled to any exemption from capital gains tax the seller’s lawyer must do an exact calculation of the tax. This was not the case before. It is important to use a lawyer with experience and understanding of the intricacies of the calculations of capital gains tax.
The Sale of Non-Residential Property – Under the previous law the exemption from capital gains tax was given to apartments used for residential purposes. If the apartment was used as an office there would be no exemption from capital gains tax. Under the new law this type of property will be allowed an exemption as well under certain circumstances.
Changes for the period after December 2012. As stated above this new law is only in effect until December 31, 2012. After that date there will be no extra exemptions beyond the exemptions that existed under the previous law. However, if under the previous law a person who owned more than one apartment at the same time could get an exemption from capital gains tax once every four years, from the beginning of 2013 a person owning more than one apartment at the same time will only be able to get an exemption from capital gains tax once every eight years.

I call the old law the “previous law” even though it is still in effect and will continue to be in effect. The new law which is in effect for two years only, has brought with it problems as well. We will have to wait and see if the changes in the law will bring about the desired effect of bringing down the prices of apartments in Israel or at least of stopping the rise in prices.

Issue 35 – October 2011

Aviva — Sun, 09 Oct 2011 10:26:11 +0000

In This Edition

Welcome
Featured Article – A Client’s First Impression of His Israeli Dream Home
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For Further Information

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Welcome to Israel Real Estate Law Insights

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A Client’s First Impression of His Israeli Dream Home

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I have a client that purchased an apartment from a construction company in Israel at the preconstruction stage. He recently made a trip to Israel to check on the progress of the construction and here are a few of his first impressions:

Read the complete article on our website:

http://levinlawoffices.co.il/2011/10/09/a-clients-first-impression/

Legal Vocabulary

Cheshbon Neemanut - Escrow Account. If you are abroad your attorney can set up an escrow account to take care of any payments that have to be made according to the contract.

Tip of the Month

Whether you are buying a new apartment or second hand, before signing the contract check with a professional that can advise you as to whether or not you can make the changes you want to make in the apartment or the plans.

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Subscription Information

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For Further Information

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To receive a free copy of Nicole Levin’s popular ebook Essential Things You Need to Know About Buying Real Estate in Israel please send a blank email to:

mailto:ebook@levinlawoffices.co.il

Additional information can be found at:

http://www.levinlawoffices.co.il/free-stuff/

Further interesting articles can be found at:

http://levinlawoffices.co.il/articles/

Previous newsletters can be found at:

http://levinlawoffices.co.il/newsletter/

If you have any further queries please feel free to make use of the Contacts page on our website:

http://www.levinlawoffices.co.il/contact-us/

A Client’s First Impression of His Israeli Dream Home

Aviva — Sun, 09 Oct 2011 09:13:10 +0000

The apartment is so small

When my client came to look at the apartment the walls weren’t up yet and the floor had not yet been poured. He went to look at a similar apartment in the next building that was the same size and layout and that had a floor. He was taken aback by how small the apartment was. My client is living in a large suburban house and he is used to more space. Before signing the contract he had seen the plans. However the plans that he saw were in square meters not square feet.

The lesson to be learned is that you should have the plans translated into square feet if that is what you are used to. This can give you an idea of the size of the rooms.
It should be noted that the rooms always look very small at this stage. When the floor is poured and the walls are up and whitewashed things should look more promising.

Upgrading Is Very Expensive

When you purchase an apartment from a construction company at the preconstruction stage, you sign on specifications and plans for the apartment. These “specs” set out what the apartment is built from, how many electrical sockets, what the tiles and floors are made from etc. The plans show the size of the rooms and the layout. If you want to change the floor plan, add electrical sockets or upgrade the tiles or closets be prepared to add a lot of money to the price of the apartment. My client discovered that many of the things he wanted to do in the apartment would cost a lot of money. He was basing his calculations of what he knows things cost in the States. He discovered that in Israel things were more expensive than he thought they would be.
My client had opted on moving the location of the kitchen only to find out that the porch next to the new kitchen location could not have a succah. The porch for the succah was closer to the original kitchen location. This was very disappointing to him.

The lesson to be learned is that it is important to consult with an Israeli interior designer before signing the contract. This designer can look at the plans and the specs, find out from the company what changes can be made and how much they cost and advise the purchaser as to what the upgrades will cost and whether this apartment can be made into the apartment that the purchaser wants. This way the purchaser knows before he signs on the dotted line what he can and cannot do and how much to expect to pay for changes. Based on the answers to these questions the purchase may decide to buy a different apartment.

When Will the Dollar Stop Devaluating?

The price of the apartment was set in New Israeli Shekels (NIS). The NIS is legal tender in Israel not the dollar, the euro or the pound. In addition to this the prices of apartments purchased from construction companies are usually linked to the building index. This means that if the building index goes up one month by half a percent the outstanding amount of the price still owed on the apartment goes up by half a percent. It is therefore best to try to pay the bulk of the money during the months when the building index is low and not spread the payments out over a long period of time. It is also wise to convert your dollars or whatever currency you have to shekels when you have the money available and not wait for the currency to rise again against the NIS. It may rise and then it may fall and then you will have less NIS left after the conversion of the currency with which to pay for the apartment. My client did the above but there were times in which he speculated and held back on converting the money and this might have been a mistake.
Converting you currency into Israeli currency costs money and this expense should be factored into the cost of the purchase as much as you can.

My client is feeling disappointed right now but I am sure that as the construction progresses and his new apartment begins to take shape he will begin to feel the first excitement of purchasing an apartment in Israel. All it needs is some planning and good old “SAVLANUT” (patience).

A different client of mine purchased a second hand apartment. She does not live in Israel yet and she did the whole purchase while she was abroad. She gave me a power of attorney and I signed all the paperwork in her name. I opened up an escrow account and she wired all the money to this account. I converted the money to NIS and make the payments necessary for the deal. At the end of the transaction I did the walkthrough of the apartment with the seller and accepted the apartment for her.

She came to Israel a few days after the possession of the apartment was given over to me. She was very happy with the smoothness of the whole transaction. She had a good time buying furniture and appliances for her new apartment. I referred her to various professionals who helped her set up the apartment the way she wanted. I just recently finished the registration of title in the Israeli Land Registry and she is now the legal owner of her first apartment in Israel.

Some transactions run into problems but many run smoothly. If you surround yourself by good real estate professionals they can help you solve any problems you may run into.

Issue 34 – May 2011

Aviva — Thu, 12 May 2011 06:26:41 +0000

In This Edition

Welcome
Featured Article – What is in the Works for Israeli Real Estate?
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For Further Information

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Welcome to Israel Real Estate Law Insights

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What is in the Works for Israeli Real Estate?

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In the past couple of years anyone dealing with Israeli Real Estate has been occupied with several issues. When purchasing an apartment in Israel it is important to understand some or all of these issues and how they can affect your transaction.

Read the complete article on our website:

http://levinlawoffices.co.il/2011/05/12/what-is-in-the-works-for-israeli-real-estate/

Legal Vocabulary

“Hamarat Matbea Chutz” – The conversion of foreign currency.

Tip of the Month

Due to the falling dollar rate it is a good idea to convert your dollars to shekels at the beginning of the transaction. This will ensure that you have enough shekels to pay for the apartment. It is not safe to speculate on the rate of exchange. The rate of the dollar could go up but it can also go down and this may leave you short of money.

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Subscription Information

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For Further Information

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To receive a free copy of Nicole Levin’s popular ebook Essential Things You Need to Know About Buying Real Estate in Israel please send a blank email to:

mailto:ebook@levinlawoffices.co.il

Additional information can be found at:

http://www.levinlawoffices.co.il/free-stuff/

Further interesting articles can be found at:

http://levinlawoffices.co.il/articles/

Previous newsletters can be found at:

http://levinlawoffices.co.il/newsletter/

If you have any further queries please feel free to make use of the Contacts page on our website:

http://www.levinlawoffices.co.il/contact-us/

What is in the Works for Israeli Real Estate?

Aviva — Thu, 12 May 2011 06:19:22 +0000

Is there a real estate bubble in Israel? This question has been on everyone’s mind. The press is full of articles about this. The Governor of the Bank of Israel, Mr. Stanley Fisher has been concerned with this as well. The fear of many government officials is that if there is a real estate bubble this can have an adverse affect on the economy just like it did in the United States. There has been an increase in real estate investments in Israel due to the fact that many people who invested in real estate abroad lost a lot of money when problems arose there and many people lost money on the stock market as well. Many people with money to invest began to look towards real estate investments as a safer form of investment and they chose to invest in Israel, which remained relatively unaffected by the real estate crisis in the rest of the world. Therefore, the government has put into place a series of changes designed to lower the prices of real estate in Israel. These changes include raising purchase tax for additional apartments in order to deter people from purchasing additional apartments as an investment and allowing for more exemptions from capital gains tax thereby freeing up the market for more apartment sales by people who own more than one apartment, but did not want to sell until this point so as not to incur capital gains tax. The Bank of Israel has made new rules pertaining to the different mortgage tracks and how high a percentage of financing a purchaser can take. More land was freed up for the construction of new apartments, thereby bringing into the market more apartments under the old rules of supply and demand. However, many complain that there are not enough new apartments being built to really bring the prices down and the construction companies are complaining that construction costs have gone up.One thing that I personally feel will help the situation is if the Israeli Land Authority (the government body that controls most of the land that is being used for this new construction) would lower the prices that they charge for land for new construction projects.

Strengthening Buildings Against Earthquakes. Experts predict that there will be an earthquake in Israel. They don’t know when but they know there will be one. There has been much debate in Israel about what would happen if there was an earthquake in the country. Buildings built after a certain year are safe because by this time many laws and building codes providing for the construction of buildings that could withstand an earthquake were in place. However, this is not the case with many buildings built before the 1970’s. On the other hand not many people can afford to pay for the strengthening of their buildings by themselves. The zoning authorities have passed a national zoning law called “Tama 38”. This allows for owners of apartments in a building needed to be strengthened against earthquakes to enter into a contract with a contractor who will do the work. It is a win-win situation for both the apartment owners and the contractor. The apartment owners get an upgraded, modernized building (able to withstand an earthquake with new plumbing and electrical wiring etc.) and an additional room added to their apartment (this is usually a security room built of reinforced concrete which strengthens the apartment and building even more). The owners of the apartments sell building rights to the contractor who can add a few floors to the building, construct new apartments which he can then sell thereby getting reimbursed for the construction work on the existing building and making a profit as well. Tax breaks have been given to apartment owners for this type of project.

The Preservation of Historical Buildings. This has been a hot item in the past few years. On the one hand the State of Israel is a very young state but on the other hand the Jewish people have been around for thousands of years and there has always been a Jewish presence in the holy land. Although, buildings built before the 1700’s have always been preserved, this was not always the case with buildings that have been built in the last 150 years, thereby ignoring the more recent history of the State of Israel and its development. Many beautiful buildings that should have been preserved were demolished. One striking example of this is the demolition of the beautiful “Gymnasia Herzliya” in order to construct “Migdal Shalom”, the first Israeli skyscraper in Tel Aviv. In the 1980’s, 1990’s and later new laws dealing with the preservation of historical buildings have been enacted. The authorities have also looked for ways to finance these types of projects. In the past twenty years many of these historical buildings have been bought and renovated while preserving the original architecture of the building. One only needs to walk through Neve Tzedek, and historical Tel Aviv (Herzl, Rothschild, Nachalat Binaymin, Allenby, Yehuda Halevi streets and more) to see all the preservation work that has been done and that is still under way. There is a huge trend of urban renewal going on that when completed brings with it tourism, new businesses, an enhancement of the quality of life in those neighborhoods and a rise in the worth of the apartments in those places. Examples of this is, Nachlaot and the German Colony in Jerusalem, historical Zichron Yaakov, Jaffa, Neve Tzedek, historical Tel Aviv, Sarona (the German Colony of Tel Aviv) the American Colony in Jaffa and more. This has brought with it the new trend of boutique hotels housed in many of these historical buildings. In 2003, Unesco declared Tel Aviv (the White City) a national heritage site due to the fact that it has the highest number of buildings built in the Bauhaus style than any other place in the world. Many of these buildings are located along Shederot Rothschild and the vicinity (in Tel Aviv) and they add to the feel and style of the city. Last year, the Israeli Land Authority sold part of Sarona (the German Colony across from the Azrieli towers) to a group of investors. About 34 small houses that made up the German Colony built in the second half of the nineteenth century by German Templars are being renovated. When the site opens up next year these houses will be galleries, stores museums and restaurants and will be another place for tourists and Israelis to enjoy.

From Government Owned Land To Privately Owned Land. As I wrote in my article “The Powers That Be in Israeli Real Estate” 90% of the land in Israel is owned by the government and administered by a government agency called the Israeli Land Authority. Anyone buying apartments built on this type of land would get a long term lease for 49 years. In recent policy and law changes it has been decided to give over the private ownership in the apartments to the holders of these long term lease rights. This process has already begun and many apartment owners have been given direct ownership in their apartments by the Israeli Land Authority.

Changes in the Laws Governing Purchases of New Apartments from Construction Companies. Although there were already laws in place to protect purchasers in these types of projects several changes to the law were enacted to add to this protection. This is due to the fall of a large construction company several years ago. All money paid to the construction company building and selling the project is paid with a pay slip directly into the special account set up for the project. The purchaser’s money is protected as soon as this deposit is made even if the bank guarantee has not yet been issued. In addition to this, construction companies are now obligated to give more details in the specs of the apartment as to what materials are used in the construction of the apartment where as before the construction companies were allowed to be vague on this issue.

Purchasing Groups. I can’t write an article about issues that concern Israeli real estate investors without mentioning the purchasing groups that have arisen left and right. A purchasing group is basically a group of people who get together, purchase a plot of land and hire professionals to build the building for them. The original idea was to save money on construction costs by cutting out the middle man (the construction company). Indeed, the purchasing group in its purest form could do just that but this did not always turn out to be the case as my article called “The Pros and Cons of Purchasing Groups” points out. In addition to this, new decisions by the Ministry of Finance vis a vis purchase tax and value added tax (probably instigated by the construction companies) have diminished some of the “pros” of purchasing through a purchasing group.

The Falling Dollar Rate. In the past all second hand real estate transactions were linked to the U.S. dollar. After 2006, when the U.S. dollar began to fall against the Israeli shekel the linkage of prices of second hand real estate transactions more or less ceased. Now prices are quoted in shekels and Israeli sellers no longer heed the dollar rate of exchange. This has made life very difficult for foreign purchasers who have to convert foreign currency into shekels in order to pay for their apartments purchased in Israel.

Above I endeavored to give a few examples of the some of the hot items concerning Israeli real estate professionals in recent years. Although not all the above may affect you it is a good idea to know what is going on. Knowledge is power they say.

Any previous articles that I referred to in this article can be found on the articles page of my website.

Issue 33 – April 2011

Aviva — Thu, 07 Apr 2011 07:38:40 +0000

In This Edition

Welcome
Featured Article – Recent Changes in Israeli Land Taxes
Subscription Information
For Further Information

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Welcome to Israel Real Estate Law Insights

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Wishing all our clients and friends a Very Happy Pesach

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Recent Changes in Israeli Land Taxes

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http://levinlawoffices.co.il/2011/04/07/recent-changes-in-israeli-land-taxes/

Legal Vocabulary

“Hetel Hashbacha” – Betterment tax. When there is a change in the zoning in the neighborhood which enhances the worth of the property then you are charged a betterment tax. This tax is paid when you sell the property or when you ask for a building permit to utilize the new zoning law. When selling an apartment your real estate attorney should check if this tax will apply and how much it can come to so that you don’t come up short on cash when you sell.

Tip of the Month

When purchasing an apartment in Israel sit with your real estate attorney and have him or her do the calculation of the purchase tax. If you are an oleh then have him or her do the calculation both ways to see if it is worth using the partial exemption given to olim. You can use this partial exemption for 7 years from the date of making aliya. So perhaps it is better to save this exemption for a future purchase. If you are thinking of purchasing an additional apartment as an investment when you already own at least one apartment and you feel the purchase tax is too high (purchase tax for an additional apartment has been increased recently) you may want to consider registering the apartment in the name of someone else. Your real estate attorney should go over the pros and cons of doing this.

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Subscription Information

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For Further Information

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To receive a free copy of Nicole Levin’s popular ebook Essential Things You Need to Know About Buying Real Estate in Israel please send a blank email to:

mailto:ebook@levinlawoffices.co.il

Additional information can be found at:

http://www.levinlawoffices.co.il/free-stuff/

Further interesting articles can be found at:

http://levinlawoffices.co.il/articles/

Previous newsletters can be found at:

http://levinlawoffices.co.il/newsletter/

If you have any further queries please feel free to make use of the Contacts page on our website:

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Recent Changes in Israeli Land Taxes

Aviva — Thu, 07 Apr 2011 07:20:20 +0000

What to do about the Israeli real estate bubble? That has been the question asked by many Israeli real estate professionals and government officials. The prices of apartments have soared in the past few years making buying an apartment for many families a pipe dream. The Governor of the Bank of Israel, Mr. Stanley Fisher, has been talking about this issue for a long time now. He has implemented several actions which were designed to halt the rising prices but to no avail. The real estate professionals have been shouting at the top of their lungs: “free up more new real estate projects and the prices will stop rising”. Many new projects have indeed come into the market but only about half of the amount of new apartments needed to make a difference to the prices on a national level.

In steps the Israeli Ministry of Finance to save the day! I am being facetious of course. In mid February of this year the Ministry of Finance enacted a series of changes to the existing laws governing purchase tax and capital gains tax. The purpose of some of these changes is to stop the rising real estate prices. Below please find a list of a few of the changes:

Change in the purchase tax. Purchase tax for single apartments was lowered while purchase tax for an additional apartment was raised. This helps young couples and families purchasing a home (where this is going to be the only apartment they own) as it greatly reduces the purchase tax they will have to pay. Indeed, if the apartment is less than 1,350,000 NIS there won’t be any purchase tax to pay at all. However, anyone who already owns an apartment and would like to invest in real estate by purchasing an additional apartment then they will pay a much higher purchase tax. Indeed, if the additional apartment that they buy is above 1,000,000 NIS they will pay 5% of this – a whopping 50,000 NIS!

Ways to get around the extra tax: In the case of the purchase of an additional apartment where the purchase will be higher there are a few ways to lower the tax. One way is to register the new apartment in the name of someone else who does not own another apartment in Israel. However, should this person wish to purchase an apartment in the future he may then have to pay the higher purchase tax since this second purchase will not be his only apartment. This purchaser will have to unload the first apartment somehow. Another way to get around the tax is to separate the worth of items included in the apartment which can be dismantled, such as air conditioning, cabinets etc. from the price of the apartment. This will lower the price of the apartment thereby lowering the purchase tax.

Change in Capital Gains Tax. In all real estate transactions the sellers are liable to pay capital gains tax. In the case of residential apartments there are several types of exemptions from this tax under the previous law. If a person owns more than one apartment then he can sell one of his apartments with an exemption from capital gains tax every four years. If the seller has only one apartment then he can get an exemption from capital gains tax once every year and a half. This means someone (who only has one apartment) can buy an apartment, sell it and get an exemption and then buy another apartment instead of the one he just sold and sell that apartment in a year and a half and get an exemption from capital gains tax. There are also exemptions for the sale of apartments gotten through inheritance, giving apartments as gifts between close family members, the sale of two small apartments in order to buy one large one etc. Under the new law (which will be in effect for a period of two years unless extended) sellers will be able to get an additional two exemptions in addition to any exemptions they could have gotten under the existing law. This means that people with multiple apartments can sell some or all of them and get exemptions from capital gains tax for these sales without having to wait the four years between sales with exemptions.

Limit to the exemptions from capital gains tax: The additional exemptions in the new law are limited to a price of 2,200,000 NIS. This means that if the price of the apartment sold is less than 2,200,000 NIS then the seller will get a full exemption from the capital gains tax. If the price of the apartment sold is more than 2,200,000 NIS then the seller will get an exemption from the capital gains tax for the amount of the price up to 2,200,000 NIS and he will be taxed for the amount of the price above 2,200,000 NIS.

What happens to the exemptions under the previous law: Sellers can use the exemptions from capital gains tax that were in effect under the previous law.

Tax planning: The changes in the law make it necessary for sellers to do some tax planning with their real estate attorney. For example, if a seller has an apartment that is worth 3,000,000 NIS and an apartment that is worth 2,000,000 NIS he can get an exemption now for both apartments without waiting four years between sales. He should use the previous law for the exemption from the capital gains tax for the apartment selling for 3,000,000 NIS because the previous law did not have a price limit and even apartments that sell for more than 2,200,000 NIS can get a full exemption from the capital gains tax under the previous law. For the apartment selling for 2,000,000 NIS the seller should ask for the exemption under the new law. This is just a simple example of how a little tax planning can save a lot of money.

Procedural changes: The new law has brought with it some procedural changes. One of the most prominent changes is the fact that in a deal where the seller is not entitled to any exemption from capital gains tax the seller’s lawyer must do an exact calculation of the tax. This was not the case before. It is important to use a lawyer with experience and understanding of the intricacies of the calculations of capital gains tax.

The new law which is in effect for two years only, has brought with it problems as well. We will have to wait and see if the changes in the law will bring about the desired effect of bringing down the prices of apartments in Israel or at least of stopping the rise in prices.

To see the new purchase tax levels please go to the following link http://levinlawoffices.co.il/free-stuff/purchase-tax/