Here is the new formula of linking the prices of new dwellings to the construction input index: The area of the dwelling specified in the contract of sale is NIS 5,500, which is an average construction cost of square meters. Or the consumer price index, in a way that causes significant additions to apartment prices – between thousands of shekels and tens of thousands and even more. If the formula is implemented, it could motivate developers to raise apartment prices further.
The issue has come up in recent months, due to a jump in the prices of construction inputs. These are all the same work materials, wage costs, energy, transportation and more that make up the price that developers pay when building apartments. Due to the corona there has been a sharp rise in the prices of these, and last year there was a 5.3% increase in the index. Developers tend to link the entire price of an apartment to this index, and apartment buyers are amazed to receive from time to time an unhappy update about the increase in the price of their apartment, and the additional payments they have to pay to the developer.
Buying an apartment? You should be vigilant
The law is an improvement on the situation, but a number of points need to be noted: once the law is approved, it is very likely that entrepreneurs will indeed try to raise prices in order to directly recoup the improper profits derived from the sweeping indexation. In terms of these days, this is 2-3% of the price of the apartment, which is currently derived as a coupon for including the land component in indexation. This will require public vigilance, and the ability to bargain with the developers. Because the law may correct price increases that are currently levied in bypass ways – but will still allow entrepreneurs to charge them by way of a direct price increase.
Another matter is to set construction costs at NIS 5,500 per square meter. Once a law mentions a price, it must be updated from time to time, especially when the prices of construction inputs rise constantly. If the price per square meter remains constant for too long, it will deprive developers.
And a final matter is the question of when an apartment will be considered suitable for residence, so that developers will stop pinning it to the index. The law imposes on the Minister of Housing to make regulations in the matter, so that until such regulations are made, the law will not be completed. It should be noted here that it is likely that when the local planning and building committees issue occupancy forms for buildings – there is an official institutional recognition here that construction has been completed.
“There is no justification for linking the price of the entire apartment to the construction input index”
This is not a new procedure, but for years the construction input index has kept a small fire. Even when it came up occasionally, it happened when apartment prices fell (e.g. in the years before the Beijing Olympics in 2008) and less attention was paid to it. Last year, however, buyers had two problems together: a sharp rise in prices, as well as a real jump in this index, and then complaints began to flow about how it was calculated and flaws were soon found in the old formula.
The most basic complaint is that the construction input index applies to the entire price of the apartment, while in many places, especially in the center of the country, 50% of it constitutes the land component, which there is no justification for attaching to the index. The land was purchased prior to construction, it does not constitute construction input and the developers manage in this way to rake in their pockets additional percentages for the price of the apartment, which can reach tens of thousands of shekels – depending on the location, price and time of purchase: the more central the location. the ground; The higher the price, of course, the more expensive the linkage (in shekels, not in percentages); And the farther the date of occupancy of the apartment – the longer the index knocks and therefore the more expensive the apartment.
Another complaint concerns the linkage of the price to the input index. Today, it is customary for the index to be activated from the moment the contract of sale is signed with the developer until the apartment is occupied. In practice, however, it often happens that developers complete the construction of the house months before the apartments are handed over, or that people purchase apartments in populated projects, and yet the developers require them to link to the construction inputs until the payments for the apartment are completed.
“The construction input index affects the contractors’ expenses in relation to the cost of construction only and has no effect on the land and profit component that make up the majority of the apartment price. In any case, there is no justification to link the entire apartment price to the construction input index. “Neither the material nor the employees are used anymore, or alternatively when the seller is late at the time of delivery, and there is still a linkage of the balance of the payment,” the explanatory memorandum to the bill reads.
In light of this, the Ministerial Committee for Legislation approved a bill by MK Alex Kushnir (Yisrael Beiteinu), according to which developers can link only construction costs per square meter (as stated, NIS 5,500 per square meter) double the area of the apartment, to the consumer price index or the construction input index (Usually it is customary to link to the construction input index); any payment paid by the buyer to the developer for the apartment will be divided proportionally between the construction costs and the total cost of the apartment according to the contract of sale.
The bill further stipulates that in cases where the payments for the apartment have not yet been completed, a developer will not be able to link it to the construction input index when it is found that the apartment is habitable and the deadline for delivery of the apartment to the buyer has passed.
It can be seen that the last section includes a sanction against developers who are late in their construction. Nowadays, there are often complaints from apartment buyers, according to which quite a few projects are late in the delivery of the apartments, with the developers explaining that the corona caused it and they are not willing to compensate the buyers for the delay. This bill will not solve the problem, but will make the delays in the delivery of apartments less lucrative for developers.
The Contractors Association is less than happy with the change
Minister of Construction and Housing Zeev Elkin responded by saying that “a proposal to amend the Sale Law will change the method of linking the price of the apartment and save tens of thousands of shekels for young couples who purchase the apartments. It will be clearer and more transparent. The Sale Law will allow apartment buyers to “The input of construction inputs neutralizes the price of land. MK Alex Kushnir’s proposal passed in the Ministerial Committee for Legislation will join the government bill that will soon be introduced with further changes to be made by the Ministry of Construction and Housing within the Sale Law to protect young couples and their rights against contractors.”
Minister of Construction and Housing Zeev Elkin / Photo: Shutterstock, Roman Yanushevsky
While the president of the Builders Association of Builders, Raul Srugo, was naturally less pleased: “This unfortunate decision was made in a move that is supposed to help homebuyers but hurt them immediately. In light of her incompetence in everything related to the planning and execution of the marketing of the land for construction, the Israel Land Authority mows the land on the backs of the buyers of the apartments and now also prevents those who build their homes for the Israeli public from protecting themselves. “In linking the price of the apartment to this increase. Again, the public will pay more because of the regulator’s decision that is supposed to stand by him.