Lack of Supervision Will Lead to Land Marketing Fraud / TheMarker
Published on November 20th, 2016 / Ohad Shpak
(For the Hebrew version – TheMarker newspaper – click here)
The Knesset members’ pursuit of bills and laws leads, from time to time, to the enactment of necessary laws, but without the necessary tools to implement these same laws, their provisions are fated to fail. Thus, for example, is the case of protecting the public against fraud in the buying of agricultural land that has not yet been cleared for construction.
Over the past decade, a marked increase in the purchase of agricultural land has been observed in Israel, estimated at NIS 4.5 billion a year.
Most of the buyers are middle class, the average age is 40, and buying an apartment is not within their reach. Their only hope is to build the house of their dreams by means of a relatively low financial investment, with the aim of acquiring land intended for future residential construction. Most of these transactions are completely speculative, as it is difficult for buyers to assess the chances of land being converted to land for residential purpose or future tax levies. Therefore, the buyers are subject to the promises of real estate sellers, which sometimes have no ground to rely on.
In 2014, Israel’s Land Appraisers Council awakened, and after long discussions, approved Israeli Appraiser Standard No. 22. The Standard provides potential purchasers of agricultural land with appropriate information, enabling them to examine the profitability of the acquisition and to take into account inherent risks.
According to this Standard, the appraiser is obliged to appraise the value of the land in its present state and the likelihood of the land being cleared for residential purposes. In his real estate appraisal, the appraiser is obliged to detail theK stages involved prior to the land becoming residential, estimate the period of time required, appraise the value of the land once construction is allowed, and detail payments and taxes the buyer will have to pay until the long-awaited goal is reached.
Even with the approval of the amendment, no legal obligation was imposed on the seller of agricultural land to present real estate appraisals. Thus, the existence of the Standard did not affect many purchasers who continued to operate in light of the information received from the sellers – information that, in many cases was partial, and did not reflect real facts.
To remedy this situation, regulations came into force at the end of October 2016, requiring sellers of land not available for construction, to discover to the consumer at the advertising stage that the land is not intended for construction at the time of sale. In addition, the regulations require the land dealers to provide the potential purchaser with an real estate appraisal prepared by an appraiser, in accordance with Standard 22, before the parties sign a binding agreement. The regulations also impose a monetary fine on sellers who do not comply with these instructions.
The regulations, promoted by the Israeli Consumer Protection and Fair Trade Authority, are indeed a welcome step in reducing knowledge gaps between land dealers and buyers, but this initial step is insufficient to achieve the desired goal. To bridge the gap between the written text of the law and the purpose for which it was intended, the regulations must be effectively enforced by means of significant supervision and allocation of inspectors in an appropriate number.
It is not known how many inspectors will be allocated by the Consumer Protection Authority for inspection of agricultural land – one can only assume that only a few inspectors will be provided – though without adequate supervision, purchasers cannot be adequately protected. As the Salmonella incident reminded us last summer, (the Israeli Ministry of Health has only several dozen supervisors for thousands of food factories), and construction industry accidents (17 supervisors for 13,000 construction sites), without the necessary tools to supervise the regulations, it will not be possible to adequately protect buyers who will continue to buy land hoping it will be possible in the near future to build their dream house.