Did you buy a new apartment from a contractor? Congratulations! But did you know that the price in the contract is not necessarily the final price you'll pay? Meet the factor that can make your apartment tens of thousands of shekels more expensive – and how to deal with it.
The Construction Input Index is a statistical figure published by the Central Bureau of Statistics (CBS) on the 15th of each month. The index reflects changes in construction costs for residential apartments and offices in Israel. It measures changes in material prices (such as concrete, iron, cement), workers' wages, mechanical engineering equipment, and more.
When you purchase an apartment "on paper" or during construction stages from a contractor, in the vast majority of cases, the remaining payment you haven't yet paid is linked to this index. This means that if the index rises, your debt to the contractor increases accordingly. This is a mechanism designed to protect the contractor from raw material price increases, but in practice it places significant financial risk on the buyers.
An annual increase of 2-3% in the Construction Input Index on a remaining debt of one million shekels means an addition of 20,000-30,000 NIS to the apartment price in just one year. Spread over 3-4 years of construction, this could amount to 100,000 NIS or more.
Mortgage banks usually do not finance index additions as part of the original approved mortgage (unless prepared for this in advance). This means you will often need to bring these differences from home as additional equity at the last minute.
It's important to know about the recent Sale Law amendment that came into effect, which limits indexing to only 40% of the apartment price and exempts from indexing after the contractual delivery date. An experienced mortgage advisor will know to check whether your contract meets the requirements of the new law.
One of the most common questions among apartment buyers from contractors is whether it's worthwhile to advance payments to the contractor. On one hand, advancing payment "neutralizes" the index on the amount paid. On the other hand, to pay early, you usually need to take the mortgage earlier and start paying interest to the bank.
There's no one correct answer for everyone. The decision depends on index expectations versus the interest rate level in the economy. During periods when the index rises sharply and interest rates are low, advancing payments is usually profitable. Conversely, when interest rates are high and the index is moderate, it might be better to wait.
Don't let the Construction Input Index surprise you. Proper planning of the payment schedule and smart mortgage management can save you significant amounts. We're here to build the most profitable strategy for you.
Schedule a consultation now