There are major differences between buying an existing apartment in Israel from a private individual (second hand) and buying a new apartment from a construction company at the preconstruction stage. Below are a few things to remember:
- Check the permits. Have a professional check the building permit to see that the construction company actually has a permit to build the floor on which your apartment is located. Very often construction companies obtain a building permit for a certain number of floors but then apply to the municipality for a permit to build additional floors. They begin to sell the apartments on the floors that they do not yet have a permit for. Sometimes a construction company will attempt to sell apartments even though a building permit has not yet been issued for any part of the project at all. If this is the case, your real estate attorney should make sure that the contract contains a clause allowing you to withhold payments until the building permit is issued, and that allows you to cancel the contract if the permit is not issued within 6 months from the signing or if the municipality demands significant changes in the plans of the apartment before it issues the permits.
- Check the zoning. Have a professional check the zoning for the neighborhood. It is good to know if there are extra building rights to the building. It is useful to know what type of structure is planned for that empty plot across the street. Is it a school, a synagogue, a park or something less desirable?
- Check the plans. Go over the plans of the apartment with a professional. These plans are the company’s obligation to you regarding what the apartment will look like. If you would like to make changes to the internal structure of the apartment consult an architect or interior designer. Once you’ve done this, it is important to inform the construction company of any changes or additions as soon as possible, so that they can make these changes during the construction. Very often these changes cost extra money. The further along the construction company is in the construction, the harder it is to make changes.
- Plan for delays. All building contracts contain clauses allowing the construction company to be late without paying any compensation to the buyer. These contracts usually state that there can be a delay of up to three months with no need to state the reason for such a delay. It is rare that a construction company completes a project on time, so plan accordingly from the beginning. Even if the company finally does compensate for lateness (when the delay is beyond what it is allowed under the contract), the compensation never really covers added expenses such as rent or storage etc.
- Check for Problems. On the day you receive the keys to the apartment, you and a representative from the construction company will complete a walk through of the apartment to check its condition. A protocol is written listing all the defects. Consider hiring an engineer to do this with you, so that you do not miss any problems at this stage. The company does not have to fix something that could have been seen at this time and was not included in the protocol. Hidden defects that could not be detected at this point must repaired by the construction company when they are discovered.
- Protect your money. Usually the construction of a project takes about two years. During that time you make payments to the construction company as stipulated in your contract. The law mandates that your money be protected by either a bank guarantee or an insurance policy. These documents are there to protect your money. They stay in effect until you take possession of the apartment and your rights to that apartment are registered. It is critical that you pay all payments into the special escrow account associated with the project. Any payment made “under the table” will not be protected by the bank guarantees or insurance policies. Should the construction company go bankrupt before the completion of the construction, the bank giving the financial backing will either refund your money or continue the construction with another company.
- Plan your payments. The price of an apartment to be purchased from a construction company is usually linked to the building index. This means that if inflation rises, the outstanding amount still owed on the purchase price increases accordingly. It is wise to plan your payments in such a way as to minimize the effect of the building index on the price.
- Pay on time. Late payments accrue interest in addition to the linkage. The construction companies enforce this interest clause very strictly and they usually do not agree to changes in the clause. Try not to be late in making payments as this can increase the price of the apartment by tens of thousands of shekels.
- Get registered. At the end of the construction, the company is obligated to register the whole project in the land registry. This registration can take several years and in the meantime temporary registrations are made to protect your rights in the property and to ensure the transfer of rights in an orderly fashion in the event that you sell the apartment before the registration. It is for this reason that you are asked to pay the company’s legal fees.
Contracts to buy from a construction company are typically very long and complex. Before you sign on the dotted line make sure you have legal representation to protect your interests and help you to navigate the different issues involved in these types of transactions.