A straightforward roadmap to the five legal safeguards that shield your funds and your future home from developer default
1. Why this matters
Israel’s Sale (Apartments) Law 1974 and the companion Regulations on Assurance of Investments of Apartment Purchasers give foreign buyers some of the world’s strongest safeguards when purchasing a new-build or “off-plan” home. The rules cap what a developer may collect, dictate five recognized forms of security, and impose automatic compensation for delays and defects.
2. The core rule – up to 7 % only, and into escrow
- No security ⇒ no more than 7 % of the price may be taken before you receive one of the five legal guarantees.
- How it is paid: In practice the entire 7 % is transferred to a designated trust (escrow) account managed by the project’s trustee or accompanying bank, and released to the developer only after the statutory guarantee is issued.
After the guarantee is in your hands, the balance is paid according to the staged schedule set out in the contract and regulations.
3. The five recognized safeguards
| Security | What it covers | Caveats / practical notes |
| Bank guarantee | The issuing bank undertakes to refund 100 % of all payments (index-linked & interest) – excluding VAT if the developer cannot transfer title. The VAT portion is protected separately by a state-run VAT Fund managed by Israel’s Ministry of Finance. | Most common where a project has an “accompanying bank”. |
| Insurance policy | Insurer reimburses the same sums (again, VAT is covered by the VAT Fund). | Rare – premiums are high. |
| Pledge (fixed charge) | Developer pledges land or apartment rights in your favour at the Land Registrar. | Suitable for small, un-leveraged projects. |
| Cautionary note (He’arat Azhara) | A warning note is registered on title blocking conflicting dealings. | Important: Recent court rulings show that in practice this device has not always fully protected buyers’ money; use only with robust legal advice and tight payment milestones. |
| Immediate transfer of ownership | Full title (or a proportionate share) is transferred to you up-front. | Very rare; usually in nearly finished builds. |
4. Recent reinforcements (2022 – 2025)
- Amendment No. 9 (July 2022)
- Delay compensation now starts after 30 days (previously 60) and rises to 150 % of comparable market rent as delay lengthens.
- Index-linkage cap: only construction-input components may be linked, and then maximum 40 % of each payment; linkage stops on the contractual delivery date.
- No hidden finance charges: developers may charge only the statutory late-payment interest set out in the regulations.
- Bank of Israel directive (March 2025)
- Banks may allocate no more than 10 % of their quarterly new-mortgage volume to “20 / 80”, balloon-loan or other deferred-payment schemes offered by developers.
- Goal: curb systemic risk—these tools are limited, not banned outright, so you may still encounter them but in smaller numbers.
5. Quality & warranty protections
- Technical Specification (Mifrat Techni) – forms part of the contract; deviations without your consent are unlawful.
- General “inspection” year – any defect discovered in the first 12 months is presumed the developer’s responsibility.
- Extended “latent-defect” periods – waterproofing, plumbing and structure enjoy mandatory cover of 2 – 7 years, followed by three more years in which you may still sue if you prove negligence.
6. Practical checklist for foreign buyers
- Insist on seeing the security itself within 14 days of your first payment, keep the original.
- Confirm the escrow account details and ensure every transfer (even the first 7 %) goes there.
- Engage an independent Israeli real-estate lawyer; the developer’s counsel represents the developer.
- Verify the accompanying bank and its standard form of guarantee.
- Check currency-hedge options – contracts are in shekels; your funds may not be.
- Review delay & linkage wording – copy Amendment 9 language verbatim where possible.
- Plan two inspections: on key hand-over and just before the one-year warranty ends.
7. Key takeaways
- The Sale (Apartments) Law’s 7 % escrow rule, five statutory securities, and Amendment 9 caps mean your funds and delivery timetable are legally protected.
- Understand that VAT is refunded via a state fund, not the bank guarantee itself.
- Be cautious with cautionary-note security unless other protections (tight payment schedule, strong developer) exist.
- With professional guidance, buying new property in Israel can be both secure and straightforward, even from abroad.
This article is for general information only and does not constitute legal advice. Always consult a qualified Israeli real-estate attorney for your specific transaction.
