Real Estate Purchase Groups in Israel

What Are Real Estate Purchase Groups, and What Legal Risks are Involved?

Real estate purchase groups are a collective term for various types of associations made for the purpose of jointly purchasing a building or land for residence. Due to their many benefits, these purchase groups have become extremely popular in Israel. However, they inherently carry numerous risks, stemming from the intrinsic dependence between group members and the potential for conflicts of interest and lack of transparency from contractors and entrepreneurs leading the group.

How Complex is the Real Estate Market in Israel?

The Israeli real estate market is intricate, entailing various types of risks. Rising real estate prices, market uncertainties, and other factors have led many property-seekers to think outside the box in a bid to join the prestigious club of Israelis who manage to own a home, or even investment properties. One such creative solution, which has surged in popularity in recent years, is joining real estate purchase groups. Currently, a real estate purchasing group is a central way to reduce the numerous costs involved in buying an apartment. However, many risks come with purchasing in this manner, and our experience when representing apartment buyers has taught us that many buyers are unaware of these risks. Those who enter group real estate transactions without the necessary knowledge and experience can lose massive amounts—sometimes amounting to millions of shekels. In the following brief guide, we will explain the basics of what’s crucial to know about real estate purchase groups, which can even prevent such losses.

What Exactly is a Real Estate Purchase Group, and What are its Benefits?

In essence, a real estate purchase group is an association of people, who may not necessarily know each other, assembled for the purpose of jointly buying a residential building (or sometimes even multiple buildings). There are different types of purchase groups. Some groups jointly buy land (or lands) only after forming the group. Another type is organized by an entrepreneur and contractor who buy the land first and then offer it for collective purchase. There are also purchase groups of buyers who already know each other, such as a group of friends or a group from a specific sector. In these cases, there’s a significant advantage as group members can pre-select who will be their neighbors. Furthermore, there are purchase groups formed from various associations (like workers’ organizations or consumer clubs) that directly approach construction companies to secure discounts in purchasing apartments and reduce construction costs.

Common to all these types is the multitude of benefits that can come with group apartment purchases. Firstly, purchase groups can reduce the costs related to brokering and marketing the apartments. Secondly, they may allow buyers the privilege of choosing their future neighbors, especially important for those who follow a religious or orthodox lifestyle and wish to reside next to like-minded individuals. Beyond this, in some cases, various tax benefits may be granted to purchase groups, such as exemptions or discounts on purchase tax. These and other benefits have made real estate purchase groups particularly attractive in Israel in recent decades.

What Risks Are Involved in Joining a Real Estate Purchase Group?

While we’ve elaborated on the benefits above, joining a real estate purchase group can also be fraught with risks. Firstly, unlike individual purchases, there’s an inherent interdependency among group members. If any member stalls their payments, it could impact the other members, delay construction, and increase payments for the entire group. Additionally, in groups organized by entrepreneurs and contractors, it’s not uncommon for these professionals to present misleading scenarios regarding the building’s progress, the status of the construction plan, the pace of advancement, and more. Often, members lack the means to ascertain the actual on-ground status. This is especially true for building rights; relying solely on the words of entrepreneurs and contractors isn’t advisable. It’s essential to consult the building plan to understand the actual entitlements. Otherwise, buyers might find that the number of approved apartments in the group’s plan exceeds the actually approved number. These are just a few of the many risks that can arise when buying an apartment collectively.

Why is Personal Legal Representation Crucial for Buyers in a Real Estate Purchase Group?

Often, especially in entrepreneur-led purchase groups, buyers are assured that a lawyer represents the entire group’s interests. However, in many cases, these lawyers actually represent the entrepreneurs themselves, in ways that might conflict with the group members’ interests. Unlike individual apartment purchases, group purchases generally don’t include legal provisions designed to protect buyers through various guarantees. To prevent the loss of group members’ investments, it’s crucial to ensure that even in these cases, contractors provide guarantees to secure their investment as required. Personal representation of group members by a lawyer specializing in real estate and land law can help mitigate these risks and ensure members’ interests are optimally preserved.

Real Estate Purchase Group – Contact Our Experts in Real Estate and Land Law

We’ve explained what real estate purchase groups are, their benefits, and the inherent risks involved. If you have further questions or need legal consultation or any assistance on the topic, please contact our firm. We’re happy to help. Our law firm, located in Jerusalem and Tel Aviv, specializes in real estate and land law. We offer consultation and legal representation in the framework of real estate purchase groups, registration of land rights, representation in legal proceedings concerning land matters, and more.