Crucial Things You MUST KNOW When Buying in New Projects

Crucial Things You MUST KNOW When

Buying in New or TAMA 38 Projects

When looking to buy in Jerusalem, new builds and TAMA 38's give you great options!

Projects are often the best value on the market today as there is a relatively larger choice of apartments in the good areas plus the ability to design the apartments to your needs and the ability to pay the money over an extended period of time.

However, here are three things you must be aware of and careful with when buying in a project.

Permit Existence

We recommend to buy only with a permit or with a “get out” where if the permit doesn't exist within a certain amount of time, you are legally entitled to walk away from the deal with all your money back.

This is extremely important when entering these kinds of deals, otherwise you hear stories of people getting locked up for years and nothing gets done.

Your lawyer must advise, assist and confirm this is an option. This is not standard in project purchases.

Guarantees

There's two main guarantees legally by law that the developers are allowed to give.

The first is a lien - your lawyer will explain to you in more technical detail exactly what this means. In essence, if the builder doesn't complete the project or goes bankrupt, you're meant to be holding enough money to group together with other buyers and get the project done.

This guarantee is a lesser guarantee and a lot of lawyers will turn you away from it. As a broker, I don't give legal advice, but I also see this as a lesser guarantee.

The second form of a guarantee is a bank guarantee. This is where you don't pay the developer, but rather you pay the bank who is guaranteeing the developers work. The bank gives the builder the money on a basis that they agree on with the developer.

This way, if the developer goes bankrupt, the bank will find someone to take over and finish the project, or your money through the guarantee is meant to be returned with interest and inflation attached.

The VAT is included in the purchase price and is not guaranteed but the money should be reclaimable as a return from government. It is extremely vital that you get the right guarantee and that your lawyer explains it in complete detail.

Do not base anything on the information written here, this is just so you can become familiar with the concepts. Speak to your attorney for legal advice.

Building Index

This is the way that payments get made in Israel for nearly all developers. The developers set a price and based on how you pay the money, the price moves. If you pay them 100% in minute one, or as soon as you can, there is barely any inflation.

But if you you pay them 20% payment right away and 80% payment at the end and this index goes up by let's say 20% over two or three years, that 80% will go up by the inflation rate. 

Obviously, as money is paid on the agreed payment terms, the money is only indexed while it is not paid. So if you have a payment made after 8 months, as long as you paid it on time, it will only be indexed for that period of time.

Three to four years ago, this index went approximately one to two percent a year and wasn't too much to be concerned about. Now, with Corona and the price of building materials increasing, this index has in the last few months gone up 1% a month.

It is extremely important that your lawyer explains this to you, and that your broker also informs you of this because it will affect a) what you buy and b) how you buy it.

If your money is making 0% or sitting there doing nothing, you may decide to pay the builder as much as your lawyer will allow you to pay, so that you will link to significantly less.

This index is not made up by any builders, it is the way that developments in Israel normally work and there are very few developers that do not include this index.

It is important to understand the index before you buy and whether you have the option to prepay if you decide to. Your lawyer is the person to do this.

These are three very crucial things you must understand before entering a new build or TAMA 38 project, and must get legal advice from your lawyer.

See available Jerusalem real estate here and new development projects here.