Real Estate transactions in Israel

Real Estate in Israel - General Information

Israeli law, especially the Land statute of 1970, considers land ownership in Israel (including vacant land, buildings, and apartments) a prime property right that requires strict registration and preservation.

For this reason, Israel has developed a registration system of land rights, which is constitutive. The registry creates ownership.

Each parcel of land is defined by its position. It is a part of a larger block that has a unique number. The parcel itself also has a unique number of its own. In a tenement, the house is defined as a condominium and each apartment receives a unique number, the sub-parcel number. The combination of the block, parcel and sub-parcel number creates a unique identifier for each real estate property in Israel.

The Ministry of Justice operates a Registration Office, in which all ownerships are registered. Such registration is a public record and everyone can acquire a statement for a small fee.

In Israel, real estate property transactions require a binding document – a contract – in writing.

Any real estate contract must contain the unique identifier for the property. This affords the buyer peace of mind, since identifying the property and its owner is quite straightforward.

After conclusion of the transaction, the new owner's rights are registered under their name at the land registration office.

The whole process can take a few months to complete, since it involves receiving confirmations from the Tax Authority.

Real estate is one of our principal practice areas 

In recent years, there has been a significant increase in housing prices in Israel.

As much as it may seem illogical, this increase caused a rise in the number of annual acquisitions of apartments, new and second-hand alike.

In order to increase supply, as well as to allow for urban regeneration and to enable strengthening the buildings against earthquakes, the government is promoting nationwide programs to address these issues.

At the same time, and in a look for ways to reduce the cost of acquisition of apartments, new purchasing mechanisms, such as purchasing groups, have emerged.

None the less, "Build in Exchange for Land" acquisitions remain a popular way of acquiring land for construction.

Our firm escorts this type of transactions and offers the following services, among others:

  • Full legal support
  • Registration of ownership
  • Real estate taxation
  • Financing deals
  • Executing deals by proxy
  • Property management

Rental and Leasing of Real Estate assets

Our firm represents clients in agreements to lease real estate assets of all types, both apartments and commercial properties.

Renting a property from the owner's perspective

Israeli law requires an eviction order from a civil court in order to evict a tenant from a leased apartment, a process that can take a long time. The lessor must carefully choose the lessee and ensure that the lessee deposits the appropriate collateral in order to prevent them from staying in the property after the termination of the lease.

Therefore, when we represent an owner, we make sure that the chosen lessee is a reliable tenant. This is the first consideration when letting an apartment to a stranger. In addition, we demand the appropriate collateral and guarantees from the tenant to make sure that they will maintain the property well throughout the entire lease period, pay the rent and all other costs, and would not remain in the property after the end of the rental period.

Taxation of lease of apartments by individuals

Individuals who lease an apartment privately, can be taxed on their income in one of the following ways:

  1. Request and receive full or partial tax exempt;
  2. Pay reduced tax, 10% of the income only;
  3. Pay tax by the rules and rates applied for regular profits of the individual

Choosing between the various options requires a detailed examination of the total income of the individual from all sources. Below is some relevant information to make the decision.

Request and receive full or partial tax exempt

Although a tax-exemption sounds great, it is not necessarily the right choice in all cases. There is a wide range of factors that should be considered before making a choice.

The full exemption option is for monthly rent income on all owned properties, not exceeding NIS 5,000. This amount is updated periodically and can be checked on the Tax Authority website.

Those who pass this limit shall pay the full marginal tax on the balance of the rent. But surprise! Because the income from rent passes the limit, the excess amount is reduced from the original exempt amount to form a lower new exempt amount. For example, anyone who rents properties totaling NIS 6,000 per month will benefit from an exemption only up to the amount of NIS 4,000 per month since the excess income of NIS 1,000 over the limit reduces the exemption ceiling by NIS 1,000.

Furthermore:

  • You cannot ask for a full exemption and use the reduced path of 10% tax at the same time.
  • You cannot ask for an exemption when the property is not rented out for residential use, even if it is an apartment.

When the apartment will be sold, if the sale is subject to Appreciation Tax, the depreciation of the apartment will be subtracted from the original purchase value, even though it was not used to save tax, since the exemption was requested anyway. Because of this reduction, a significant increase in Appreciation Tax must be paid. Therefore, it is advisable to examine the scope of consolidated tax paid during the rent period, together with the expected Appreciation Tax, before choosing this tax option.

Pay reduced tax, 10% of the income only

Here, the individual pays a flat rate of 10% tax on all the rental income from apartments leased for residential use.

The tax is levied on income, rather than profit. Expenses incurred are not recognized.

In this option as well, when the apartment will be sold, if the sale is subject to Appreciation Tax, the depreciation of the apartment will be subtracted from the original purchase value, even though it was not used to save tax. As in the previous option, this reduction entails a significant increase in Appreciation Tax to be paid. Therefore, it is advisable to examine the scope of consolidated tax paid during the rent period, together with the expected Appreciation Tax, before choosing this tax option.

Pay tax by the rules and rates applied for regular profits of the individual

With this option, the individuals pay the tax on their profits from the rent, in accordance with overall taxable income.

Here, you are entitled to all the expenses incurred to produce the rental income. You can consider the depreciation of the apartment as an expense. The depreciation of the apartment will be subtracted from the original purchase value, but unlike other options, this time the depreciation was demanded as an expense during the rental period and was used to reduce the tax paid annually.

The Lease from the tenant's perspective

When we represent tenants in negotiating a lease we look for the following:

  • We ensure that the property belongs to the lessor.
  • We make sure that the required collateral is reasonable and that the right to use it is fair.
  • We make sure that the apartment is habitable and demand that the owner be responsible for malfunctions in the property, as long as they are not caused by the tenant.