Opportunities and risks in the Israeli real estate market

The Israeli real estate market is booming today. Demand for apartments is growing, prices continue to rise, and in the planning pipeline there are tens of thousands of new apartments to be built in the coming years.

But along with the opportunities in purchasing land and properties in Israel, there are also dangers for those who own land in Israel and for those who are interested in purchasing new land or apartments.

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More than 50,000 new apartments will be built on private land between Tel Aviv and Herzliya

Between Tel Aviv and Herzliya, new neighborhoods will be built in the coming years with tens of thousands of new apartments in the pipeline that will be added to the housing market, and there will also be a significant increase the supply of apartments in the center of the country. These are apartments planned in huge complexes on land that some of which is multi-owner private and partly state-owned (Israel Land Authority - ILA), most of which are currently in various proceedings in the planning institutions. The huge complexes are: Pi Glilot in the Asher area in Ramat Hasharon; TA/3700 in north Tel Aviv; the Sde Dov complex in Tel Aviv; and the Hof Hatchelet in Herzliya. The plans have been "on the table" of the various committees for many years at various stages of approvals, and many landowners in these complexes are non-residents who are not always aware of changes in plans and opportunities for rapid land realization.

Adv. Shmuel Shoob, managing partner at Shoob & Co., whose firm represents dozens of private landowners in these complexes, notes: "A large part of the land in these complexes is privately owned land (except for the lands that are owned by the state and marketed as part of ILA tenders). Private land is fertile for extensive transactional activity. Some of the transactions will be made between private individuals and companies and entrepreneurs, some between private individuals and there are also individuals who purchase a small area that is defined by the sellers as a 'right to an apartment'. 

As this is an unusual location in the center of the country and some even close to the sea, the prices before the final approval of the plans are not cheap and can reach up to NIS 1.5 million per unit in the requested complexes, but the expectation is that when the plans are finally approved and construction can begin, the prices will go up.

It should be noted that only after approval of the detailed plans phase that will include balancing and division charts will the rights holders know whether they will be allocated rights for residence or other purposes, every purchaser should know this, i.e. the purchaser knows that when he buys an equivalent unit by value, the final zoning is not certain.

In addition, since the construction plots have a scope of rights that will usually oblige the owner to cooperate, it is recommended that they unite towards the approval of the detailed plans, so that they can quickly promote land use through self-construction or combination agreements with developers. It should be noted that the association and co-operation are important even for foreign residents, for which it is important they be represented in order to take care of their interests even when they do not live in the country and are not informed about the progress of the programs.

Forgeries and fraud in lands held by foreign residents in Israel

The importance of representing in Israel landowners living abroad also stems from the fear of fraud and deceptive actions. In recent years, there have been a number of cases of forgery of land costs while taking advantage of the fact that landowners are abroad.

Adv. Aviad Shoob, a partner in the firm, points out that there is a phenomenon where criminals forge the ownership of the land and sell it without the owner living abroad knowing this.

For example, a ruling by the Israeli Supreme Court this year dealt with a case in which a seller in a real estate transaction pretended to be the registered owner using forged documents, and disappeared after the fraud was committed. The registered owner, a foreign resident, demanded the cancellation of the transaction, but after it became clear that the purchasers innocently purchased it and registered it with the Land Registry, he was not entitled to restitution of the land and therefore filed a lawsuit against the lawyers representing the impostor. The Supreme Court ruled that even the lawyer does not have to bear the costs and will not be liable for compensation. “An attorney is not a detective or a private investigator. He does not have special technical means at his disposal to detect acts of forgery and impersonation, and in the absence of ‘warning signs’ that should have aroused his suspicion, he cannot be held absolutely responsible for preventing damage."

This is a ruling that today requires landowners in Israel to take extra care and constantly check whether there have been any changes in land ownership.

Is it worth buying land for investment in Israel?

Today, in addition to transactions for the purchase of apartments in Israel, foreign residents are also considering purchasing land as a long-term investment. But it is worth knowing that in the Israeli real estate industry there are many entrepreneurs who sell land with a lot of promises and dreams.

Adv. Naama Schiff, a partner in the firm Shoob & Co., notes that the first check to be made before purchasing land is a check of the planning status.

The industry today offers land for sale at various planning stages: unplanned land or agricultural land that needs to undergo a lengthy planning procedure. When purchasing such land, it is very important to check the plans, even land adjacent to a built-up neighborhood will not always change the designation for residential construction in the coming years. Regional and district outline plans should be reviewed prior to purchase. In the entire central area, for example, there are extensive lands such as nature reserves or land intended for metropolitan vacations, and these lands may not be rezoned for construction in the foreseeable future.

A second type of land is land that has changed its designation to residential but has not yet been approved for consolidation and subdivision plans and detailed plans. Today there are many developers who sell the same land as a "right to an apartment" and offer small plots of land with the promise that at the end of the process they will be able to get a residential apartment, but in practice we witness many problems that arise when approving the final plans and there is no certainty that the purchased land will yield an entire apartment or part of an apartment or rezoned land.

So how do you make the right deal?

Buying agricultural land can be a very lucrative deal but it is especially suitable for investors and requires the help of professionals to examine all aspects of the deal and have the patience to go through all the bureaucratic procedures, which can take years.

My first advice to buyers of agricultural land is not to purchase too small of an area. It should be taken into account that the areas that are purchased, even when there is a chance of a rezoning plan, are areas purchased gross. In practice in any planning procedure it will be necessary to allocate extensive areas to public areas.

Another proposal is to take into account the future expenses for taxation with the approval of the plan for rezoning the land. Improvement levies must be paid, amounting to about 50% of the improvement from the date of purchase of the land until the day the plan is implemented.

In addition to the improvement levies, the landowners will also demand development levies that are charged by the local authority for the development of roads and infrastructure in the new neighborhood. Here, too, this can reach significant amounts.

Shoob & Co. is one of the largest and leading offices in Israel in the fields of real estate, planning and construction. Since its establishment in 1957, the firm has been providing its clients with a full basket of legal services in a variety of aspects of the real estate sector. The firm was established by the late Adv. Moshe Shoob, who is considered one of the oldest and pioneering lawyers in the field of real estate in Israel, and is currently headed by his children, Adv. Shmuel Shoob, who serves as managing partner, Adv. Naama Schiff, Adv. Aviad Shoob and Adv. D. Mely Rozenbloom. Shoob & Co.'s clients include public and private real estate and construction companies as well as other companies, and many private clients.

For more information: Shoob & Co. Law Offices

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