Payment Terms and Building Index

Payment Terms and Building Index:
Buying Off-Plan Apartments in Jerusalem
Blog Series

One of the many advantages of buying off-plan in a new build or TAMA38 project is that of the payment structures.

With the correct guarantees, you can decide how much you want to pay up front, and then structure the rest of the payments to your needs.

Standard structured payments generally run from 7% at the beginning, another 10-15% when the bank financing starts, 10% at the end, and the remaining ~70% split into 4-5 payments linked to dates or milestones in the construction.

Oftentimes, builders insist on arranging a payment structure, because otherwise the banks could charge them interest.

While payment structures are a wonderful advantage to buying off-plan, it is important to understand that every shekel that is not paid up front becomes linked to the Building Index.

The Building Index

There are many additional costs and fees to be aware of when buying a home in Israel, but when buying an apartment off-plan in particular, there is another added cost called the Building Index.

The Building Index tracks the inflation rate within the construction industry and covers all costs related to construction including materials, tools, and labor. The Building Index generally moves 1.5-2% a year; during 2021 it moved over 5% due to COVID.

When arranging a payment plan for your off-plan apartment, the builders will occasionally allow you to pay 20% at the beginning and 80% at the end. This can be appealing for buyers who need more time to get their finances in order, but it can also subject the payments to rise due to inflation over time.

Clients who need the security of knowing exactly what they’re paying will need to eliminate the Building Index as much as possible, which is done by paying as much as possible to the builder as early as possible.

Make Your Money Work for You

Payment structures are a great benefit of buying an apartment off-plan, and are sometimes even required by the builder and the bank; however, you must keep the Building Index in mind when structuring the payments.

With the right team backing you up, you can make your money work for you strategically by deciding how much your payments will be at which stages, factoring in the Building Index, and sticking to a reasonable budget.

Stay tuned for Part 2 of this series, coming next Thursday!

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