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This is what can happen when selling an apartment before an urban renewal procedure

Selling an apartment before an urban renewal procedure has, ostensibly, an opportunity for the seller to get a very high return, but is it really worth it?

You may think differently after reading this

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• Apartments

• Real Estate

Adv. Moshe Raz-Cohen

Tuesday, 19 October, 2021, 10:16 Updated: 10:34

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Selling an apartment before an urban renewal procedure at a high price is a tempting deal, but there is a danger: sellers of apartments in renewal proceedings may find themselves under a heavy burden of various taxes and levies, some of which they are not even aware of.

When is the right step to sell the apartment, and when is it advisable to avoid?

Selling a residential apartment just before or while the building is entering urban renewal should be a great deal for the seller.

The price he could demand is already close to the value of the future apartment that will be built in the new project, while the headache of the demolition and construction process has been spared.

Sounds good, right?

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To the full article

It is very worthwhile to understand all the considerations and all the elements before putting an apartment up for sale before urban renewal (Photo: Reuven Castro)

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So this is, not so much.

Selling an apartment before or during an urban renewal project can have unintended consequences.

The main danger is the sale of the apartment after its demolition.

The sale of a tenant's rights in an urban renewal project after his apartment has been demolished is not considered a normal sale of a residential apartment, and does not benefit from the exemptions that apply to such a transaction.

While ordinary apartment sellers are entitled to an exemption from appreciation tax for the sellers of their only apartment or for low appreciation tax rates, the sale of an apartment after its demolition is a transaction for the sale of another right in real estate that is not a residential apartment.

In such a case, the goodwill tax rate can reach 40%, so this is a very risky deal for the seller.

And what happens in the interim period, when the seller is after signing a contract to carry out a project but before the actual demolition?

In this case, too, the approach of the tax authorities is that this is not an ordinary sale transaction.

For them, the buyer did not buy the existing apartment, but the right towards the developer to receive the new apartment, which has not yet been built.

Even under this approach, the exemptions for the sale of a residential apartment will not apply and the high tax rates of the sale of another right will apply.

But in this case, it is highly doubtful whether the courts will adopt the approach of the tax authority.

What happens when the apartment is sold even before the seller signs the renewal agreement with the developer?

Here you can enjoy the exemptions that apply and the reduced goodwill tax rates.

However, to the extent that the consideration paid for the apartment is affected by the fact that the buyer expects the project and therefore paid a consideration that exceeds the value of a similar dwelling where there is no such expectation - the consideration should be split between the part attributed to the dwelling as it is, and the part attributed to additional expected building rights.

The tax attributable to each apartment will be applied to the part attributed to the apartment.

While the additional part will be considered for the sale of another right - that is, without exemptions and at the high rates of goodwill tax.

Here the law benefits the seller, and the portion attributed to the dwelling will be double the value of a dwelling without building rights and no more than 2,140,700.

The balance will be credited to another credit.

The praise tax is particularly high - do not be tempted.

Imaging of urban renewal (Photo: Imaging V5 Architects)

The star of the improvement levy

Adv. Raz Cohen (Photo: Yachz)

Another matter that deserves much attention is the improvement levy.

"In case of sale of rights after the plan was approved urban renewal and before the start of construction, will be the tenant seller betterment levy that could reach hundreds of thousands of dollars. Billing betterment levy also exposed those who signed the agreement with the developer.

In order to deal with the obstacle of this, it is proposed to try to reach Understanding with the developer through the tenants' attorneys, who are willing to take the payment on themselves. tenants decide to sell the apartment before the start of the project.

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