What is a Pre-Sale Transaction in Israel?

A pre-sale transaction refers to the purchase of an apartment before the developer has obtained a building permit. Until about a decade ago, this method of purchasing was considered acceptable but relatively uncommon, accounting for approximately 15% of all new home transactions. However, in recent years, due to exceptionally high demand for apartments, the number of pre-sale transactions has surged, making up more than half of all new apartment purchases in Israel.

Advantages of Pre-Sale Purchases

There are several financial advantages to purchasing an apartment in a pre-sale:

• Lower Price: The most significant advantage is the price, which may be 10%-15% lower than the price of the apartment after the building permit is issued. Additionally, as construction progresses and the project nears completion, prices typically rise.
• Flexible Payment Structure: Payments are usually spread over 3-4 years during the construction process. In many cases, buyers pay only 20% of the total price at the time of signing the contract, making it a more financially manageable option.

Risks and Uncertainties

Despite the potential cost savings, purchasing in a pre-sale also comes with certain risks and uncertainties:

• Uncertain Delivery Date: Most contracts specify the delivery date only from the date the building permit is issued, meaning that if the permit process is delayed, so is the apartment’s completion. Even after a permit is issued, delays can be common.
• Changes in the Final Apartment Layout: While the project is planned according to an approved master plan, changes may arise during the permit approval process. The local committee issuing the permit may impose modifications that can affect the layout, size, or positioning of the apartment. Since purchases are made “on paper,” it can be difficult to fully visualize what the apartment will look like, what kind of view it will have, and how the final design will turn out.
• Increased Risk of Developer or Contractor Issues: The risk of bankruptcy or other financial disruptions affecting the developer or contractor is higher in pre-sale transactions compared to ready-built properties. This risk is particularly significant if the developer is small or relatively unknown.

To mitigate these risks, you should choose a reputable developer—preferably a well-established, financially stable company with a strong track record of successful projects. It is crucial to review contract terms carefully, ensuring legal protections regarding delivery timelines, penalties for delays, and guarantees on construction quality. Additionally, consulting with an experienced real estate lawyer can help navigate the complexities of pre-sale transactions and safeguard buyers’ interests.

When deciding between purchasing a new or resale home in Israel, you should also weigh factors like customization, pricing, and potential delays in construction. For a detailed comparison of the advantages and challenges of each option, visit our guide on new vs. resale homes.