Navigating Legal and Regulatory Requirements
When buying property in Israel, it’s essential to navigate the legal and regulatory requirements carefully.
Land Registration and Ownership Types: Israel’s property registration system, known as the Land Registry Office (commonly referred to by the Turkish word “Tabu” from the Ottoman period), is highly reliable. It is essential to confirm the property’s registration status and type of ownership (e.g., private land, leasehold on private land, or land owned by the Israeli government or the Jewish National Fund and administered by the Israel Land Authority).
Only 10% of the land in Israel is privately owned. This includes land redeemed by Jews in the last two hundred years or land that never left Jewish ownership. During the late 19th and early to mid-20th centuries, Jews living both in the Land of Israel and abroad acquired land using various methods. Often, groups of Jews from abroad collectively purchased land and established small agricultural settlements, such as Petach Tikvah, Rehovot, Rishon LeZion, and Zichron Ya’akov. Often, land was also purchased in urban areas to establish Jewish neighborhoods, such as Tel Aviv and the first neighborhoods outside the walls of the Old City of Jerusalem.
Understanding Land Registration and Ownership in Israel
The remaining 90% consists of lands from three sources:
- Lands purchased by the Jewish National Fund (Keren Kayemet L’Israel): The decision to establish the Jewish National Fund was made by the World Zionist Organization at its first congress in Basel in 1887. They created the fund to collect donations from Jews worldwide to purchase land for Jewish agricultural settlement in the Land of Israel. Since the Land of Israel was part of the Ottoman Empire without a Jewish government, the question arose, “Who would own the land?” The answer was that the land would be owned and held by the Jewish people in perpetuity.
- Public lands transferred from the British Mandate government to Israel upon statehood: At the end of World War I, the Ottomans lost control over the Land of Israel, and the British were granted a mandate to govern Palestine—the Land of Israel. The British Mandate lasted from 1917 until 1948.
- Lands belonging to Arabs who fled during the Israeli War of Independence in 1948 and never returned.
These three sources make up 90% of the land in Israel. A person purchasing property on these lands receives a long-term government lease for 49 years. This lease is renewable at the end of each 49 year term.This practice ensures Jewish ownership and control over the land in perpetuity.
However, in the last 20 years, owners of these types of properties have begun receiving direct ownership status (instead of a long-term lease). Foreigners wishing to purchase property on these lands must be Jewish to complete the transaction.
Church-owned land
Another potentially problematic category of land is church-owned land. When the Land of Israel was governed by the Ottoman Empire, many foreign countries sought a foothold in the Holy Land. They achieved this by purchasing land in the name of various churches and establishing hospitals, schools, and churches. In many cases, such land is leased by the church to the Israeli government, which then subleases it to local Israelis who have bought apartments there.
Buying property in Israel on government-owned land does not restrict your ability to obtain a mortgage or perform other actions available to direct landowners. When purchasing real estate in Israel, your Israeli real estate attorney should clearly explain the land type and its ramifications. Your lawyer conducts the title search, as there is no title insurance in Israel.
Performing Essential Legal Due Diligence
Legal Due Diligence: Non-residents should carefully review building permits, property boundaries, and existing encumbrances such as mortgages, liens, or disputes. This step is crucial to avoid unexpected legal or financial complications.
This review should be part of the title search, but an Israeli real estate lawyer is not qualified to carry out this specific aspect of due diligence. It is best to hire an appraiser who will inspect the property, retrieve the file from the municipality, and compare the building permit to the actual construction on-site. If discrepancies exist, the appraiser can advise how to rectify the situation, including whether it’s possible to obtain permits to legalize unauthorized constructions.
Understanding this is essential before any real estate transaction. If there is illegal construction, the municipality may sue for demolition, and fines may be incurred, even if the previous owner carried out the unauthorized construction. Additionally, properties with illegal construction will be appraised at a lower value by a bank’s appraiser.
Navigating Israeli Property Taxes for Foreign Buyers
Tax Obligations: Foreign buyers are subject to specific tax regulations, including potentially higher purchase tax rates and capital gains taxes upon resale. Your Israeli real estate attorney will handle these taxes. It is highly recommended to consult an Israeli real estate lawyer with expertise in Israeli real estate taxes to conduct effective tax planning prior to the transaction.
for more information on buying real estate as a non resident read out resent blog!
