Buying a house on paper? You may pay 10-15% more than you thought

For those who have bought new apartments under construction, their prices may unexpectedly increase by 10-15% in the coming years, as the cost of building materials has increased.

The final price of nearly all new projects sold in Israel is linked to the government’s Building Cost Index, which tracks changes in the cost of construction materials and labor. Funding that is spread over the years the apartment is under construction is linked to monthly changes in the index.

“So, for example, if you bought an apartment for NIS 3 million and put 30% down, the initial NIS 900,000 would be at the price you agreed on,” said Nachi, a senior real estate agent at Nachi Realty in Jerusalem. Paris explained. “But all future payments are subject to whatever increase in the building index since the signing of the contract. So NIS 2.1m. What you owe now could increase to NIS 2.3 or 2.4m. Three in years.”

During the past decade, the Building Cost Index has grown by 1-2% annually. However, the index is up 3.4% in the first six months of 2021, and experts expect it to grow at 5% per annum for several more years.

All this leads to skyrocketing real estate prices across Israel. According to the Central Bureau of Statistics, housing prices have risen by 7.2% over the past year, and show no signs of slowing down. Data for new home sales and mortgages shows records being broken every month.

The government has made reducing housing costs one of its key goals, and the finance ministry has said a comprehensive new plan aimed at ruling the market will be published in the coming days. However, the Minister of Works and Housing Zeev Elkin has said that prices will continue to rise even more dramatically in the coming year.

Paris said those who have been hurt by the rise in the building cost index are those who bought subsidized apartments in the government’s Mechir Lemishteken program several years ago. He said that when he won the government lottery to be able to buy those low-cost units, his clocks started ticking, and many people were locked into five-year commitments at prices that were faster than people expected at the time. were growing, he said.

“The developers are all very happy because this is the money they make without the buyers even realizing it,” Paris said. “A lot of big developers have large warehouses that already have glass and other materials, so their costs aren’t going up, but they are still entitled to add indexes so they can pocket an additional 10% or more. Huh. “

Some contractors are agreeing to pay buyers more in cash to cushion future price increases, but many are not, based on the terms of the sales contract, Ori, a real estate agent for At Homes in Jerusalem Bibas said.

Paris said it is advising its customers to go for apartments that are already built, so they know how much they are committed to paying, rather than buying them on paper. In theory, the buyer of a property under development could attempt to negotiate with the contractor to remove the link to the building index, although Paris said it would never have heard of this happening.

Bibas advised that those who want to buy apartments, do so early because of the rapid rise in prices. He didn’t discourage people from shopping on paper like in Paris, but he did suggest that those who try should pay as much upfront as possible.

When asked about other current Jerusalem real estate trends, Paris said there is a severe shortage of apartments available for rent. “I’d say there are about five ‘for sale’ signs for every ‘for rent’ sign out there. Nothing is available in any neighborhood, and whatever is found in the market at a reasonable price is pretty quick to grab. is taken.”