Complex deals
Combination Deal versus Cash Sale Calculator
Have you received a combination offer from a developer, and at the same time an offer to buy the property for cash? The calculator compares the two options in present value: it discounts the apartments to be received in a few years, deducts taxes and costs, and shows the value per apartment at which the two options are equal.
Disclaimer: the calculator result is an estimate only, based on the data entered, and is not legal advice, tax advice or an assessment. Do not make a decision on the basis of the result alone. Use of the calculator is at the user's responsibility and subject to the terms of use and disclaimer.
What is the difference between a combination deal and a cash sale?
In a cash sale you receive the price almost immediately, and the deal is over. In a combination deal the land owners sell part of the land to a developer, and in exchange the developer builds apartments for them in the new building. The consideration in a combination deal is usually higher in nominal terms, but it arrives only when construction ends, and until then there are risks of delay, changes and developer collapse. A full explanation is on the combination deal page.
Why compare in present value?
A shekel received in four years is worth less than a shekel received today, both because of time and because of risk. The calculator therefore discounts every future amount at an annual rate. The default is 6% a year, in the middle of the range customary in real estate appraisal for deferred realisation. Where there is no building permit yet, or the developer does not provide full security, it is worth checking the result at a higher rate as well.
How is betterment tax calculated in a combination deal?
In a combination deal the sale is of the part of the land that passes to the developer, and the consideration is the value of the construction services, meaning the apartments you will receive, plus any cash payment. The owner of a qualifying residential apartment who sells part of their rights in exchange for construction services in a building to be built on the same land may apply for an exemption on the part sold (section 49A(b) of the Real Estate Taxation Law), subject to the conditions of section 49B. The temporary provision that allowed the sale date to be deferred to the completion of construction (section 19(4)) applied only to deals up to 31 December 2006.
What should be checked in a developer's offer?
The number of apartments, the areas and the specification, the timetable and compensation for delay, the security (a bank guarantee or bank-accompanied financing), the split of taxes and payments, and what happens if construction stops. The figure the calculator shows is only part of the picture.
More on this topic: Combination deal | Complex deals | Betterment tax calculator | All calculators
Questions and answers
Is a combination deal always more worthwhile than a cash sale?
No. A combination deal usually gives a higher consideration in nominal terms, but only after several years and with risk. The right comparison is in present value, after discounting, taxes and costs, and taking into account the security the developer provides.
What discount rate is appropriate?
No single rate is set by law. In real estate appraisal, a range of about 5% to 7% a year is customary for deferred realisation, and the calculator uses 6% as the default. Where there is no building permit yet, or the security is weak, it is worth checking a higher rate.
Does the owner of a residential apartment pay betterment tax in a combination deal?
An owner who sells part of their rights in a qualifying residential apartment, in exchange for construction services in a building to be built on the same land, may apply for an exemption on the part sold (section 49A(b) of the Real Estate Taxation Law), subject to the conditions of section 49B. Consideration in cash may be taxable.
Not sure the deal is safe? Let's start with a conversation
In an initial conversation we will go over the property, the other party and the payment schedule, and tell you what needs to be checked before you sign.