Protecting investor money in international real estate: who guarantees your buyers' money?

“The contract is only 10% of the story. A deep understanding of the gap between Israeli legal culture and the local one is the other 90% that makes a project succeed.” – Prof. David Levy, international law expert, Harvard University

An urgent phone call I got this week from Yossi, a well-known Israeli developer, reminded me once again how critical the question of protecting investors' money in international projects really is:

“Ilan, the board of the Romanian bank turned down our request for bank guarantees for the project! We have 12 buyers who have already signed contracts and transferred 25% down payments. I needed a solution yesterday.”

The legal gap between Israel and international markets

In Israel, the Sale (Apartments) (Assurance of Investments of Apartment Purchasers) Law, 5735–1974, provides a clear and familiar framework for protecting buyers' money in development projects. When it comes to projects abroad, however, a completely different kind of legal complexity comes into play:

• Different legal systems: every country has its own regulatory framework.
• A different legal language: identical legal terms can be interpreted differently in different countries.
• Different expectations: the Israeli investor arrives with expectations shaped by experience at home.

In a survey we ran among 150 Israeli real-estate investors active abroad, 78% named “uncertainty about how the money is protected” as the main factor deterring them from larger investments abroad.

Key mechanisms for protecting buyers' money in international markets

So how do you actually protect investors' money in projects abroad? Here are the main mechanisms and how they differ:

1. Bank guarantee:

How it works: a local bank in the target country undertakes to pay the buyer a predefined amount if the project is not completed or the property is not transferred to the buyer's name.

The difference from Israel: in Israel this is one of the main and most common forms of security. Abroad, obtaining a bank guarantee can be far more complicated, requires substantial collateral from the developer, and is sometimes simply impossible for Israeli developers.

“The first time I tried to get bank guarantees for a project in Bucharest, the local bank demanded that I deposit 95% of the guarantee amount with them as collateral. What's the point of that?” – Doron M., an Israeli developer active in Romania

2. Title insurance:

How it works: this insurance protects the buyer against future legal problems concerning ownership of the property, such as hidden liens or third-party ownership claims.

The difference from Israel: in Israel, registration of rights is well regulated through the Land Registry (the “Tabu”). In many countries land registration is less certain, which makes title insurance especially critical.

3. Escrow account:

How it works: the money is deposited in an escrow account managed by a neutral third party and released to the developer only as the project progresses, according to defined milestones.

The difference from Israel: in Israel, escrow accounts are regulated by law. Abroad, the terms and the regulation vary dramatically from country to country.

A 2023 EY study found that escrow accounts are the preferred mechanism for 67% of international investors in cross-border real-estate projects, thanks to the transparency and flexibility they offer.

4. Registering a caution (caveat / notice of interest):

How it works: a note is entered in the local land register informing third parties of the buyer's rights in the property.

The difference from Israel: in Israel, a caution note is a strong and widely used legal tool. In many countries, how effective the registration is depends on the local system and varies dramatically.

5. Construction completion insurance:

How it works: this insurance is meant to guarantee completion of the project if the developer goes bankrupt or fails.

The difference from Israel: in Israel there is no equivalent standard insurance mechanism; bank guarantees fill that role. Abroad, it is a solution that is steadily gaining popularity, especially in large projects.

Insights from the field: what Israeli investors are really looking for

In my experience supporting international projects, the Israeli investor arrives with experience from home and the expectations that come with it. He expects to find mechanisms similar to the ones he knows from the Israeli market, and tends to be suspicious when he runs into different arrangements. This is a critical point that many developers miss.

A buyer-protection model that works across markets

Supporting hundreds of cross-border deals led me to develop a working model that combines the following elements:

1. Legal-cultural translation – adapting local buyer-protection mechanisms to the expectations of the Israeli investor.

2. Combining complementary protection mechanisms:

o An escrow structure with defined milestones, and external supervision of whether the milestones are met (where possible and agreed by the developer).

o Security mechanisms adapted to local legislation.

o Registration of buyers' rights in line with the local system.

o Transparency requirements and financial audits.

3. Practical thinking – guiding the developer through the key points the Israeli investor considers especially important

Critical differences in buyer-protection mechanisms between major markets

USA

In the American market, title companies are the main players in protecting buyers' money. The level of regulation varies dramatically between states – the mechanisms in New York or California are significantly stricter and more developed than those in Florida or Texas.

“The gap between New York and Florida in security requirements for development projects is like the gap between Switzerland and Romania.” – Alex S., an Israeli-American real-estate developer

Europe

There is enormous variation among EU countries: Western Europe has well-developed completion insurance mechanisms, while in Eastern Europe the mechanisms are less developed and call for legal creativity.

An interesting example is Spain, where, after the 2008 financial crisis and many developer collapses, legislation was introduced requiring all buyers' payments to be deposited in supervised escrow accounts.

East Asia

In markets such as Singapore, Thailand or Japan there are sometimes significant restrictions on foreign ownership of land. This leads to complex legal structures (such as local companies or long-term lease agreements) that add another layer of risk for the investor.

Why Israeli legal support is essential for a developer working abroad

Just as an international court relies on an interpreter to bridge language gaps, an Israeli developer working abroad needs a “legal interpreter” who can translate the foreign legal structure into a language the Israeli investor understands.

“My American lawyer is excellent, but he simply doesn't understand what worries an Israeli investor,” says Yair, a developer who built a commercial complex in Philadelphia. “Israeli legal support let me bridge the cultural-legal gap and turn hesitation into trust.”

A 2024 Harvard University study found that in international real-estate deals, “cultural-legal bridging” is one of the five leading factors in a deal's success, especially when the investors come from countries with a different legal tradition.

Bottom line: the Israeli investor wants to understand before he is ready to invest

The typical Israeli investor is sophisticated, demands transparency and puts the protection of his money above everything else. As one veteran investor told me: “I'm not looking for the same guarantees I have back home. I'm looking to understand how my money is protected in the foreign country.”

The developers who are most successful at raising Israeli capital for projects abroad are the ones who invest in building a “bridge of trust” – explaining in simple, clear language how the local mechanisms protect investors' money, and presenting this as an advantage rather than a drawback.

If you are planning a project abroad and want to raise money from Israeli investors, remember: investing in the design of your security package, and in explaining it to investors, may be the most important investment you make.