Israel's Consumer Protection Authority has tightened how non-buildable land may be marketed. Here are the safeguards every land buyer should know.
Recently there has been a wave of articles concerning the field of land sales and investment, with particular emphasis on the recent activity of the Consumer Protection Authority in enforcing policy.
To enable a comprehensive understanding of the situation and the momentum behind the Authority’s actions, we have put together a concise article detailing the prominent features of the legislation and the key elements that should be borne in mind.
Companies engaged in the sale and marketing of land that is not available for building are subject to a set of regulations as established by law.
First, let us define what “land not available for building” is: it is land that does not have the permits required for building.
In the current market, almost all land advertised to the public through social media falls into this category, unless it is sold as a purchase group. This is due to the fact that, once land becomes available for purchase, there is no point in waiting for its value to rise, and buyers have a higher chance of starting construction immediately. Land that is available for development is more expensive, and demand for it among contractors and business owners is significant, given the scarcity of such properties.
When it comes to land that cannot be developed, there is great potential both for improvement and for risk. The degree of risk is determined by the specific plans that apply to the land and their status.
To illustrate, if a plot of agricultural land is defined in the outline plan as land designated for a metropolitan recreation area, and the municipality has not initiated a detailed plan to amend this designation, then the level of risk involved in this land is disproportionately high compared with its potential. The question arises whether the land will ever undergo a change of designation at all – not just a matter of timing.
When it comes to land designated for residential use in accordance with an outline plan and accompanied by detailed plans from a planning body, the growth potential is high. The risk involved in such cases is not so much a matter of “if” development will take place, but rather a matter of when it will materialise over time.
Due to the complexity of real estate appraisers’ reports, which may not be understood by the average investor without prior knowledge of the field, the Consumer Protection Authority has required that land marketers provide an appraiser’s report that complies with Standard 22. This report includes a review of the land and its relevant plans, as well as an assessment of the risk-to-reward ratio, the timing and the pricing.
Two scenarios are compared: Situation A, in which the land is not available for building, and Situation B, in which the land will be available for building.
Investors must receive the report and review it at least a week before signing the agreements. To simplify the process, a summary of the report is also required, in order to provide the essential details without the need to navigate a lengthy and convoluted appraisal.
Apart from the aforementioned regulations, businesses are obliged to act in accordance with guidelines on promoting land that is not available for development. The main provision states that every advertisement must openly and clearly declare the land’s unsuitability for building purposes.
Regardless of the existence of legal regulations, it is always wise to trust your instincts and conduct preliminary research on a company and its owners before making any commitments. Even if the offer seems tempting, it is never advisable to sign a sale agreement hastily on the day of the meeting. Take the time to thoroughly consider every aspect of the agreement before finalising any transactions.
We are glad to offer our help with any question or concern. Please do not hesitate to contact us with any question you have. The Connection Group team.
The author of this piece is not a legal representative, and it should not be regarded as legal advice. This is not an exhaustive list of all the provisions established in the Consumer Protection Law, but rather a summary of the most important points we have identified. If you need more comprehensive information, we recommend that you visit the Consumer Protection Authority’s website and review the full guidelines.
Download the Investor Brief and read it alongside your own advisors.
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Investing in land, including planning-based land opportunities in Israel, involves significant risk. You should review the following with your own legal, tax, and financial advisors before making any decision. The risks include, without limitation:
This summary is not exhaustive. A full statement of risk factors is provided in the investor materials and should be read in full.
