Buying Off-Plan Homes: Key Risks and Protections for Israeli Buyers
Purchasing an apartment before it is built, known as buying 'on paper,' offers potential financial advantages and customization options but also carries significant risks, according to Idan Matlin, VP and Chief Legal Counsel at Africa Israel Residences. Speaking on the 'On the Way Home' podcast, Matlin explained that buying at an early stage of construction typically results in a lower price compared to completed units.
Buyers can also benefit from flexible payment schedules tailored to their financial capacity, allowing for better resource planning over the 3-4 years until delivery. Furthermore, early-stage purchases provide opportunities to customize the apartment's design, including the number of rooms, orientation, floor level, and inclusion of amenities like storage or parking.
However, Matlin highlighted crucial risks, primarily concerning financial security. He stressed the importance of ensuring developers provide adequate collateral, such as bank guarantees or insurance policies, as mandated by Israel's Sales Law (Apartments) (Ensuring Investments). This law limits developers from receiving more than 7% of the apartment's price without such security. Buyers must also pay close attention to the delivery date, as project delays are common, necessitating contingency plans for temporary housing.
To mitigate risks, Matlin advised potential buyers to thoroughly vet developers by examining their financial stability and reputation. The involvement of a financing bank in the project adds another layer of security, as the bank scrutinizes both the developer and the project. Legal counsel specializing in real estate is essential to navigate contracts and ensure all commitments are documented.
Regarding delays, the Sales Law (Apartments) provides compensation mechanisms for buyers, with amendments in July 2022 clarifying these rights and imposing stricter penalties on developers. Matlin also cautioned that while 3D and AI visualizations can enhance the buying experience, the legally binding elements are solely the contract, specifications, and plans. He reiterated the importance of reading and understanding all documentation, emphasizing that "what is not written does not exist."
Matlin also addressed financing deals, warning that attractive terms like 20/80 or 10/90 payment plans may embed costs into the apartment's price. Buyers should be wary of significant payment portions being linked to the index, which can substantially increase the final cost. The most common critical mistake, he noted, is underestimating the impact of delivery delays, leading to buyers needing to vacate their current homes while still paying a mortgage and rent.
