Buying a Plot of Land
Buying a plot of land: the checks you must make, and the VAT trap
When you buy a plot, you are not buying a house; you are buying the possibility of building one. Most of the risk therefore lies not in the price but in what you are permitted, and actually able, to build on the land. These are the checks to make before you pay a single shekel, and the traps that recur in land transactions.
Under section 8 of the Land Law, 5729-1969, an undertaking to enter into a real-estate transaction requires a written document, and under section 126 of the same Law a cautionary note is registered in the buyer's favour. On the purchase of land with no residential apartment on it, purchase tax is 6% of the sale value, under the Real Estate Taxation (Betterment and Acquisition) (Purchase Tax) Regulations, 5735-1974.
When do you need a lawyer to buy a plot?
- Before agreeing a price for a plot on which you will build your own home.
- When the plot is held in musha (undivided co-ownership), is on Israel Land Authority land, or is in a new neighbourhood where the parcellation has not yet been registered.
- When the seller is a company, developer or entrepreneur, and you need to establish whether the price includes VAT.
- When you are offered a "plot" on agricultural land as an investment.
- Before submitting a bid in an Israel Land Authority tender.
How the work proceeds
Planning and legal review before the price
A review with an architect of the plan that applies to the parcel, together with a legal review of the extract, the type of right, musha, debts, levies and the seller's VAT status.
The agreement
An agreement that states expressly a price including VAT, a protected payment schedule and a cautionary note in your favour.
Registration and planning the house
Registration of the rights in your name, and only then the design of the house and the building permit.
What to bring to the meeting
- Block, parcel and plot number in the plan, or an address and a map.
- The seller's details: an individual, a company or a business.
- The advertisement, price quotation or draft agreement.
- A planning information file, if one has already been ordered from the local committee.
- For Israel Land Authority land: the lease agreement or the tender booklet.
Timeline and cost
Timetable: a preliminary review of the extract and of the type of right is usually completed within one to two business days of your enquiry. The planning review with the architect and the information file from the local committee also depend on the committee's timescales. After signing, the transaction is reported to the Israel Tax Authority within 30 days, and purchase tax is usually paid within 60 days of the date of sale. Registration of a plot in a new neighbourhood may have to wait for the parcellation to be registered.
Cost: the fee is set in a written fee agreement, according to the scope of the work and the complexity of the rights, and a quotation is given after an initial conversation. What affects the fee, and what it should include, is explained in the article "How much does a lawyer cost for buying an apartment". Expenses, official fees and the charges of outside professionals are not included, as set out in the box "What the fee does not include". You can calculate the purchase tax (6%) in advance with the purchase tax calculator.
Buying from a private individual or from a business
| Subject | Individual seller who does not deal in real estate | Business seller (company, developer, entrepreneur) |
|---|---|---|
| VAT on the sale | Usually does not apply | Applies, at 18% |
| The price in the agreement | Usually the final price | Make sure it says "including VAT" |
| Purchase tax | 6% of the consideration | 6% of the consideration, usually including the VAT |
| VAT offset | Not relevant | A private buyer cannot offset it |
What you need to know
How does a plot differ from an apartment?
With an apartment, you can see what you are buying. With a plot, the value depends almost entirely on questions that are not visible to the eye: who the owner is and under what right, what the plan applying to the parcel permits you to build, whether there is access and infrastructure, and what payments will fall due later. A cheap plot that cannot be built on, or that requires heavy payments before a permit is issued, is an expensive deal.
Ownership and registration checks
- Land Registry extract. Who the registered owners are, mortgages, cautionary notes, attachments and easements. How to obtain and read an extract is explained in the guide Land Registry extract: how to obtain one, what it costs and how to find the block and parcel.
- Private ownership or Israel Land Authority land. On Authority land the right is usually a lease, and you need to check the terms of the contract, whether the lease is capitalised, and what approvals are required to transfer the rights.
- Musha. When several owners hold a single parcel together without a registered division, you are buying an undivided share, not a defined plot. Without a co-ownership or division agreement, it is difficult to obtain a permit and to secure exactly where you will build.
- Agricultural land. "Plots" on land designated for agricultural use are sometimes marketed as an investment. As long as the designation has not been changed in an approved plan, a house cannot be built on them, and there is no certainty that this will change.
- Access and road. A plot without registered access to a road, or whose access crosses another person's parcel without an easement, may get stuck at the permit stage.
Planning and building checks
- The plan applying to the parcel (zoning plan). The land designation, building rights, number of housing units, building lines, and the permitted site coverage and height. Plans are checked in the Planning Administration systems and at the local planning and building committee.
- Plans in preparation. A new plan may add building rights, but it may also expropriate part of the plot for a road or public space.
- Reparcellation (consolidation and division). In new neighbourhoods, the plot shown in the plan is not always registered yet as a separate parcel. You need to check when and how the division will be registered.
- Restrictions. Power lines, infrastructure lines, antiquities, noise or height restrictions may reduce what can actually be built.
- Infrastructure. Connection to water, sewerage and electricity, and the state of development of the street.
It is advisable to request a planning information file for the parcel from the local committee and to review it with an architect before negotiating the price.
Ancillary costs to calculate in advance
- Purchase tax. On the purchase of land or a plot with no residential apartment on it, purchase tax is 6% of the transaction value, with no brackets and no sole-apartment relief. You can calculate it with the purchase tax calculator.
- Betterment levy. If a plan has been approved that increased the value of the land, there may be a betterment levy liability. Check with the local committee whether any unpaid liability exists, and specify in the agreement who bears it.
- Development levies and building fees. At the permit stage, levies and fees are paid to the local authority, and on Israel Land Authority land development costs are also payable under the contract.
- VAT. See the next section. This is the expense that surprises buyers most.
The VAT trap
A sale of a plot by a private individual who does not deal in real estate is generally not subject to VAT. But when the seller is a business, such as a company, developer, entrepreneur or someone who buys and sells real estate in the course of business, the sale is subject to VAT, currently at the rate of 18%.
This is where the trap lies: a price shown in an advertisement or draft agreement without the words "including VAT" may turn out to be a price before VAT. A private buyer cannot offset the VAT, so it is a genuine additional cost.
| Item | Amount |
|---|---|
| Price of the plot | NIS 1,500,000 |
| VAT at 18% | NIS 270,000 |
| Total payment to the seller | NIS 1,770,000 |
There is a further effect: purchase tax is usually calculated on the full consideration, including VAT. In the example, 6% of NIS 1,770,000 is NIS 106,200, compared with NIS 90,000 on the price alone.
How to avoid the surprise: check who the seller is and what the seller's VAT status is, state expressly in the agreement whether the price includes VAT, and make sure that your financing and mortgage are calculated on the full amount. In Israel Land Authority tenders, check in the tender booklet whether the price and the development costs include VAT.
After the purchase: building
After buying the plot comes the design and permit stage, followed by the choice of a contractor. The shell (structural frame) of the house is the foundation for everything that follows, and an accurate shell saves money at the finishing stage. For building the shell of villas and private houses, we recommend Livelo Construction Company Ltd., a registered contractor whose work focuses on building shells for private houses. In a contract with any contractor, it is important to set out a detailed specification, a timetable, security and liability for defects.
More on this topic: Land Registry extract guide | Purchase tax calculator | 12 checks before signing
Questions and answers
Does the price of a plot include VAT?
It depends on the seller. A private individual who does not deal in real estate usually does not charge VAT. A company, developer or real-estate dealer is liable for VAT, so it is important that the agreement states expressly that the price includes VAT.
How much purchase tax is paid on a plot?
On the purchase of land or a plot with no residential apartment on it, purchase tax is 6% of the transaction value, with no brackets and no sole-apartment relief.
Can I build a house on agricultural land?
No, not while the land is designated for agricultural use in the plan. A change of designation requires an approved plan, and there is no certainty that it will happen, or when.
What is a plot held in musha?
An undivided share in a parcel jointly owned by several owners, with no registered division. Without a co-ownership or division agreement, it is difficult to obtain a building permit and to secure the location of the building.
Related articles and pages
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.