Buying an apartment is the biggest transaction of our lives, but many forget to factor in taxation costs. Get to know real estate taxation and how it affects your equity and mortgage.
When we approach the process of mortgage consulting and budget planning for apartment purchase, the natural tendency is to focus on the property price itself. We calculate the required mortgage amount and the equity we have available, but often forget a very significant associated expense: real estate taxation.
In Israel, real estate taxation can reach amounts of tens and even hundreds of thousands of shekels, depending on the property value and the buyer's status (first apartment, housing upgraders, or investors). A common mistake is assuming the bank will finance these taxes as part of the mortgage. In practice, the bank provides financing derived from the property value alone, which means tax payments usually must be paid from your liquid equity.
Early understanding of expected tax liability is critical for building a smart mortgage mix and preventing a 'budget hole' at the moment of truth.
This is the most common tax, imposed on the purchaser of land rights. The tax amount is determined according to brackets updated annually (usually in January).
This tax is imposed on the seller when selling the apartment, and refers to the capital gain created between the purchase price and sale price.
Unlike the previous taxes paid to the tax authority, this levy is paid to the local planning and building committee.
One of the common mistakes among apartment buyers, especially those conducting the process without professional mortgage consultant guidance, is not including purchase tax in calculating required equity.
Suppose you're buying an investment apartment for 2,000,000 NIS. The bank is willing to give you 50% financing (1,000,000 NIS mortgage). Seemingly, you need 1,000,000 NIS equity.
However, you must also pay purchase tax (assume 8%, which is 160,000 NIS), attorney fees, brokerage and other associated expenses. Total associated expenses can easily reach 200,000 NIS.
The implication: You actually need 1,200,000 NIS equity. If you don't have this amount, you might find yourself in breach of contract or needing to take very expensive loans to complete the equity.
Always ask your attorney to perform an accurate purchase tax simulation before signing the contract. Don't rely on general online calculators, as there are personal parameters (such as disability, new immigrant, or inheritance) that can dramatically affect the tax amount.
The solution is advance financial planning. As part of the mortgage consulting process, we build a 'transaction portfolio' that includes not only the apartment price, but the entire economic envelope. In certain cases, you can request from the bank a 'loan for any purpose' or additional financing against an existing property to cover tax payments, but the interest terms on these loans differ from housing mortgages, so this should be considered seriously.
Proper planning of the real estate transaction saves tens of thousands of shekels and prevents heartache. Let's build your purchase budget and mortgage mix smartly and professionally.
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