Buying from Plans: The Final Price
When buying an apartment from plans in Israel you cannot know the final price of the apartment. There is the price you are quoted. There is the price in the contract. None of these are the bottom line.
Everyone knows there are closing costs in every deal. Those are additional fees and expenses like legal fees, real estate agency fees, purchase tax and more. However, there are additional costs that people don’t bring into consideration. They only become aware of them when they are hit with the fee at the end.
There are two elements to the price you need to consider at the beginning and not at the end when you are hit with the bill. The first of these is the conversion costs of your foreign currency.
When purchasing an apartment from a construction company the price is paid in Israeli currency – NIS. However, your money is in the currency of your country not NIS. When you transfer your funds to Israel they are converted to NIS. The conversion costs are made up from several components: the commission the Israeli banks charge for receiving your money, the commission the Israeli bank charges for the conversion of your foreign currency and the rate of exchange you are given by the bank.
There are three rates of exchange. The first one, the lower one, is the rate by which the bank buys your foreign currency. The second one is the representative rate of exchange published every day by the Bank of Israel (except Saturdays and Sundays). The third one is the higher one, the rate by which the bank sells you foreign currency.
The above makes the conversion of foreign currency in an Israeli bank expensive. It is for this reason that many people choose to transfer their funds through exchange companies, who usually don’t charge a commission and give a better rate of exchange.
The second hidden expense is linkage. The prices of apartments sold by construction companies are linked to the Israeli building index. All consumer price indexes in Israel are published on the 15th of every month by the Israeli Bureau of Statistics. If the index on the date you make a payment is higher than the basic index set in the contract, then the outstanding amount of the price goes up by that percentage.
The Israeli consumer price index is linked to the Israel economy. If there is inflation, then this will affect the building index.
There are things to look out for that can save you some money:
- Make sure the basic index set in the contract is the index known on the date of the signing (meaning the last index published) and not an earlier index.
- It is known that the building index goes up during the summer months. You should try to pay before the May index.
- Make sure the contract is worded in such a way that you are paying according to the known index and not the index that will be published during the month you are making your payment.
- Always pay the linkage for each payment at the time you make the payment otherwise you can be charged the interest set out in the contract for late payments.
If you would like to plan out your payment schedule in the best way you can log on to the website of the Israeli Bureau of Statistics and see how the building index has risen over the last few months and years.
Consult your Israeli real estate about this issue as it can be a source additional cost to you if you do not plan out the transaction correctly.