Raising Money from Israelis for a Real Estate Project Abroad: the Securities Law, Private vs Public Offering, and the Positions of the Israel Securities Authority

An Israeli developer who has found good land abroad quickly reaches the question of capital. The natural source is people who know the developer: friends, clients from previous projects, investors who have made contact. And from there it is a short way to a social media post, a WhatsApp group or an investors' evening at a hotel in Tel Aviv.

This is where the Securities Law, 5728-1968, comes into the picture. This guide explains when raising money for a real estate project abroad is considered an offering of securities, what the difference is between a private offering and a public offering, what the Israel Securities Authority (ISA) has said about marketing real estate investments, and what needs to be checked in the project country as well.

1When is an investment in a real estate project a "security"?

The short answer: when in substance it is a passive financial investment, in which the investor provides money and expects a return that depends on the developer's efforts, and not the purchase of an asset that the investor controls. The name given to the transaction, and even the registration of the property in the investor's name, are not decisive.

The Israel Securities Authority has addressed this explicitly. In a staff position it published in February 2022, the Authority held that two real estate ventures abroad that it examined had prima facie offered securities without a prospectus. In the case of hotel units, the investment agreements were considered securities even though the investor bought a specific unit that was registered in the investor's name in the land registry. Among the indications the Authority identified:

• The investor was not involved in decisions about the property, and the developer managed it alone.
• The return was set in advance or derived from the performance of the project as a whole, not from the investor's unit.
• All the units were sold at the same price, regardless of location, floor or size.
• The investor's ownership rights were restricted, including restrictions on transferring the rights.

By contrast, the purchase of an identified apartment for residence, or a direct and independent investment in a property that the investor manages personally, is usually a consumer transaction rather than a financial investment. Most developers' fundraisings sit in the middle: shares in a special purpose company, interest-bearing loans, or units that the developer undertakes to let and manage. Shares and undertakings to repay a loan offered to many investors are almost always securities.

2What is the difference between a public offering and a private offering?

Under Section 15 of the Law, no offer to the public may be made except by way of a prospectus whose publication the Authority has permitted. An offer to the public is defined in the Law as an act intended to induce the public to acquire securities. A prospectus is a long and expensive process, so private fundraisings rely on the exemptions in Section 15A.

The number 35 and the period of 12 months were set in Securities Regulations enacted under Section 15A. In addition, the Law provides that the count does not include, among others, investors of the types in the First Schedule, or a controlling shareholder, general manager or director of the corporation whose securities are being offered.

3Who is a qualified investor under the First Schedule?

The First Schedule to the Law lists entities such as funds, insurance companies, banks and corporations with high equity, as well as individuals who meet one of the following tests, according to the wording as of October 2026:

• The value of the liquid assets they own exceeds ILS 8 million; or
• Their income in each of the last two years exceeds ILS 1.2 million, or the household income exceeds ILS 1.8 million; or
• The value of their liquid assets exceeds ILS 5 million, and their income in each of the last two years exceeds ILS 600,000, or the household income exceeds ILS 900,000.

These amounts are the base amounts. They are linked to the consumer price index and updated once every three years, so the actual amounts are higher. "Liquid assets" include cash, deposits, financial assets and traded securities, not real estate. The investor must give written consent confirming that they meet the conditions. It is worth keeping the consent and the basis for it, because if the fundraising is examined, the burden of showing that the exemption applied will be on you.

4What has the Israel Securities Authority said about marketing real estate investments?

In a report in which it gathered findings from reviews of fundraisings without a prospectus, and in the 2022 staff position, the Authority addressed several common marketing practices:

• Intermediaries and marketers. The Law does not recognise "intermediary" status as an exemption. Anyone who seeks to offer securities to the public, including an intermediary, is subject to the duties under the Law, and the Authority regards outside marketers as an extension of the offeror.
• Return figures. Publishing average returns in the neighbourhood or city where the project is located, even when the figures come from public sources, may be considered part of an offer to the public, because it implies the expected results of the investment.
• Land registry registration. Registering the unit in the investor's name does not take the transaction outside the definition of a security if in substance it is a financial investment.

Practical rules of caution follow from this: an open post on social media, an open investors' evening, an advertisement with an expected return or a broad mailing list are acts that may be considered an "act intended to induce the public", even if in the end only a few invested.

5What is the risk of marketing to the public without a prospectus?

An offer to the public without a prospectus is a breach of the Securities Law, and the Authority takes action against it. The risks include:

1. Enforcement. Administrative or criminal proceedings against the offeror, and sometimes against its managers and the marketers.
2. Investor claims. Investors whose expectations the project did not meet may argue that the offering was unlawful and seek the return of their money.
3. Harm to the project. An investigation or proceeding in the middle of construction may harm financing and sales.
4. Additional laws. A structure that pools the money of many investors for joint management may also be subject to the Joint Investment Trust Law, and marketing investments may require a licence under the law regulating investment advice and investment marketing.

6And what about the rules in the project country?

The Israeli Securities Law applies to the offering in Israel. But the company issuing the shares or the loans is usually registered in the project country, and there are rules there too.

• In the European Union, the Prospectus Regulation (EU) 2017/1129 exempts from the prospectus requirement, among others, an offer addressed solely to qualified investors, and an offer addressed to fewer than 150 natural or legal persons per member state, other than qualified investors. The exemption thresholds for small offers have recently been updated, so the current wording is checked.
• In the USA, an offering of securities is subject to federal law and its exemptions, for example Rule 506(b), which prohibits general solicitation of the public, and Rule 506(c), which permits it only when all the purchasers are accredited investors and have been verified. State laws also apply.
• Local company law. Issuing shares in a local company requires resolutions, sometimes a notary and registration, and reporting of the beneficial owners. Investors who come in as shareholders will be exposed to these requirements.

7Checklist before fundraising

1. Define exactly what you are offering: shares, a loan, a unit or a right to participate in profit.
2. Check whether the offer is a security by its substance, not by its name.
3. Choose a route: up to 35 offerees, qualified investors, a combination, or a prospectus.
4. Keep a documented list of offerees from the first approach.
5. Obtain and keep the written consents of qualified investors and the basis for them.
6. Prepare investment documents with fair disclosure of the risks, without promising a return.
7. Limit the marketing: no open advertising, no return figures, and no intermediaries circulating the offer.
8. Check the rules in the project country and in the country of the issuing company.

8How do we accompany such a fundraising?

Together with you, we review the investment structure, the appropriate route under the Securities Law, the investment documents and the marketing plan, before it begins. We review the aspects in the project country together with lawyers licensed there. When the structure requires a prospectus or a licence, we say so at this stage, while the plan can still be changed.

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