All prices of new apartments purchased from construction companies at the preconstruction stage are linked to the building index. This is an index published by the Israeli Bureau of Statistics on the 15th of every month which is in part based on the average prices of materials typically used for construction, such as metal, iron, cement etc. It also takes into account the cost of construction workers.
If the prices of these elements rise then the building index will rise, thereby making the outstanding amount still owed on the apartment rise proportionately.
Purchasers of apartments from construction companies must try to plan their payment schedule accordingly. They should study the behavior of the building index from previous years , learn when the index rises the most and then endeavor to make most of their payments before this.
The building index poses a problem for purchasers because it is all but impossible to predict what the building index will do, and therefore difficult to assess the final cost of the apartment.
The building index poses a problem for construction companies as well. As building techniques and materials change, logic dictates that these should be added to the items making up the building index. However, this doesn’t happen in practice.
So if a company uses a product in the construction of its buildings that is not one of the items considered by the Bureau of Statistics in calculating the building index, and the price of that product rises during the construction, then the construction company will lose out. This may cause the construction company problems in finishing the project.
It’s difficult to see what the solution might be but a solution needs to be found that would make the situation more equitable both for builders and purchasers of real estate.