Tag: Contractor

כיצד להעריך את העלות העתידית של מדד תשומות הבניה ובכלל, מה ההבדל בין כסף שנקבל/נשלם היום לעומת כסף שנקבל/נשלם בעוד שנה? מאמר חשוב גם למי שאין לו כרגע קשר לרכישת דירה

במאמר הקודם על Construction input price index הראיתי שלעתים אלו שהקדימו תשלומים לקבלן בגלל החשש ממדד תשומות הבניה בעצם שילמו בסופו של דבר הרבה יותר. ממליץ לחזור ולקרוא את אותו מאמר וגם מאמר הרבה יותר ישן על הקדמת תשלומים לקבלן.

מעדיפים וידאו? יש בתחתית המאמר.

מבוא

אחת הביקורות על המאמר הקודם הייתה שאולי בדוגמה שהבאתי הקדמת התשלומים אינה משתלמת אך בדוגמה אחרת היא כן משתלמת. שאלה נוספת הייתה האם גם במדד גבוה הרבה יותר, עדיין לא ישתלם להקדים וכו'. אז כהקדמה קטנה חשוב להבין שמטרת המאמר אינה לתת תשובה לכל אחת ואחד מקוראים למקרה הפרטי שלו. אין מאמר שיכול לעשות זאת. מטרת המאמר היא להנחיל דרך חשיבה כלכלית ולהציג אופן חישוב מסוים. באמצעות אופן החישוב – השיטה המוצגת תוכל כל אחת לבצע חישוב בעצמה ולקבל החלטה באופן אישי. לא הצלחת להגיע למסקנה? בשביל זה יש יועצי מימון וכלכלנים איתם גם אני נמנה. אם כבר הולכים ליועץ, אני מציע לדרוש לראות גם חישוב ולא רק הערכות כלליות.

לא רק לרוכשי דירה

היכולת לקחת סכום נוכחי ולדעת כמה הוא יהיה שווה עוד X תקופות בהנחה של תשואה או ריבית דריבית מסוימת או מדד מסוים בעתיד היא מפתח חשוב ביותר לכמעט כל החלטה כלכלית. דוגמה: אם במקום לרכוש מכונית ב- 100,000 שקלים ארכוש מכונית ב- 50,000 שקלים בלבד. כמה חסכתי? אדם שלא קרא מאמר זה עלול לומר שנחסכו 50,000 שקלים. לאחר שתקראו מאמר זה תוכלו לומר לעצמכם שאם ה- 50,000 שנחסכו יושקעו בבורסה עם תשואה (בניכוי מס) חזויה של 6% אז בחמש השנים שהמכונית אצלי ה- 50,000 שקלים יהפכו למעל 67,000 שקלים. כלומר עלות רכישת הרכב היקר יותר לא עלתה לי רק 50,000 אלא גם התשואה שהפסדתי ובסך הכל 67,000 שקלים.

הדרך השגויה לחשב את עלות מדד תשומות הבניה

כאשר אנשים מנסים להעריך את עלות המדד הם עושים את הדבר הבא. מעריכים נניח מדד של 3% ואז כופלים סכום זה בחוב לקבלן, נניח 1,000,000 שקלים ומקבלים 30,000 שקלים. את הסכום הזה הם כופלים ב- 3 עבור שלוש שנים של חוב ומקבלים 90,000 שקלים.

זהו חישוב שגוי. החישוב מתעלם מהעובדה שהמדד פועל כמו ריבית דריבית. כלומר אם בשנה הראשונה החוב היה 1,000,000 והמדד היה 3% אז ה- 30,000 שקלים מתווספים אל המיליון ובשנה השנייה לא עושים 3% ממיליון אלא מ- 1,030,000 שזה כבר 30,900. בשנה השניה 1,060,900 * 3% = 31,827 וכן הלאה…

איך מחשבים את ההצמדה למדד תשומות הבניה

הנוסחה לחישוב תשואה/עלות ריבית דריבית הינה סכום*(1+מדד) בחזקת מספר התקופות.

אם המדד הוא 3% לשנה, החוב הוא 1,000,000 ואנו רוצים לקבל את הערך בסוף שלוש שנים נבצע:

1,092,727 = 3^1.03*1,000,000

המהדרין יזכרו שריבית דריבית כל חודש אינה זהה לריבית דריבית כל שנה ולכן יש היגיון במקרה כזה לחלק את ה- 1.03 ב- 12 ואז להעלות את הכל בחזקת 36. זה ייתן לנו תוצאה מעט שונה עם פער של כ- 1300 שקלים וגם זה בקירוב כי הריבית החודשי אינה בדיוק 3% חלקי 12 אם הריבית השנתית היא 3% אבל למרות שבמבחן במימון אתם תיכשלו עם קירוב זה, בשבילנו זה מספיק טוב. זה דרך אגב ההבדל באישור משכנתה שאתם מקבלים בין הריבית שסוכמה לשנה, נניח 3% לבין הריבית בפועל – הריבית האפקטיבית שתהיה מעט גבוהה יותר אך בצורה שכאמור לדעתי לא משנה כלום בסכומים בהם אנו עוסקים.

איך זה נראה בפועל

נניח שיש לנו לוח תשלומים מהקבלן עם מועדי תשלום וחוב בכל נקודת זמן. אנו שוקלים לשלם הכל היום או לשלם לפי הכתוב בחוזה תוך הסכמה לשלם בתוספת ההצמדה לקבלן. נבנה טבלה דומה לזו שלמטה אשר נלקחה מנתוני עסקה אמתית:

אפשר לראות שתחת הנחת מדד של 3% העלות של ההצמדה לחוב הקיים תהיה 60,000 שקלים, לאחר שהצמדנו כל אחד מהתשלומים לפי מספר החודשים עד שישולם ואז חיברנו את הסכומים. שוב, אם יש בקהל כלכלנים עיצמו עיניים כשאתם רואים אותי פשוט מחבר סכומים מתקופות שונות. זהו לא קורס מימון ובטווח של שנתיים הקירוב מספיק טוב בשביל מאמר זה.

לא כל הקבלנים מחשבים את ההצמדה באופן זה

חלק גדול מהקבלנים לא עושים את החישוב כפי שתואר מעלה אלא פשוט אומרים שאם מחודש החתימה על חוזה הרכישה עד התשלום המדד עלה בערך ב- 2% אז נכפול את החוב ב- 2% וזה יהיה התשלום הנוסף. ראו למשל קובץ אקסל שנתן קבלן ללקוח שלי עם החישוב לתוספת התשלום:

על פי שיטה זו התוספת הינה כאמור קטנה יותר כיוון שלא מכילה את השפעת הריבית דריבית. אינכם חייבים לעדכן את הקבלן שלכם שהוא גבה מעט מידי כסף.

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About a month ago, I published an article about Purchasing an apartment for investment in Kiryat Gat. This article has become one of the most read articles on the site. Many commented on the article. There was also a comment stating, if you read Gindi's purchase agreement, you will understand that you made a mistake.

I don't usually respond to baseless comments. But, if I'm offered something as interesting and challenging as reviewing a nearly 60-page apartment purchase contract, who am I to refuse all this fun?

First of all, thank you very much to D. (name kept private) who consulted with me about a mortgage for Carmei Gat and agreed that I would photograph the purchase agreement.

Perhaps because I am not a lawyer, I was not very surprised that there was nothing in the contract that could turn an unviable investment into a viable one. To tell you the truth, my opinion against purchasing, at least for investment, in Karmey Gat has strengthened after reading the contract.

I'm happy to share with you some points from the purchase agreement. As mentioned, I'm not a lawyer, and I highly, highly recommend hiring one if you intend to buy an apartment from a contractor. The contractor's lawyer represents Only You are the contractor.

There are so many "whereas" clauses, and no mention of construction according to a building permit. An additional "whereas" clause must be demanded, stating that the construction will be in accordance with the valid building permit. Think it's self-evident? Think again. For example A tower in Petah Tikva whose occupancy is delayed due to a deviation from the building permit (too few parking spaces).

Here we are reaching the most creative stage. In an article about Buying an apartment from a contractor I mentioned that an apartment from a developer is an unknown product with an unknown price. Let’s start with the unknown product. Note that the apartment’s square footage may be reduced by 5% without compensation. The Sale Law allows for 2%, but we won’t get bogged down in minutiae like Israeli law. Another issue is the inclusion of common areas (stairwell, lobby, elevator) as part of the apartment’s area based on their proportional share. In other words, if someone buys a 100-square-meter apartment and thinks they’ll be mopping 100 square meters, I have good news for them. It is very likely that they will only have to mop 80 square meters. Of course, this means they will also only be able to use 80 square meters. To illustrate, a standard room measuring 3 by 4 meters is 12 square meters. In other words, 20 square meters is a significant area deducted from the apartment for those unwilling to sleep in the stairwell or lobby. The buyer undertakes to agree that things requiring repair in the apartment will be fixed after handover. This is important. What is missing? A large portion of readers rent apartments, I assume. Every lease agreement includes a clause for repair timelines. Heaven forbid, I have had more than one conversation regarding the obligation to fix an air conditioner within 3 business days and not five as I requested. Nevertheless. Gindi, on the other hand, does not commit to a repair timeline.

 Apartment renovations I’ve spared you the trouble of looking up the relevant section of the contract. In great detail, the contractor states that any changes will delay the apartment’s delivery by up to one month, and that this delay will incur costs for the contractor amounting to 0.51% of the apartment’s price (5,000 shekels for a one-million-shekel apartment).

It is very important to add to this section the determination that at the time of the change request, the contractor will specify in writing the delay in delivery so that the client can decide whether to request the change or not.

 Of course, Gindi is just an example. In this case, I actually received their contract. Personally, I've never bought an apartment from a contractor, but I've already read several contractor contracts. The points above are not unique to Gindi.

ישנה כמעט מוסכמה חברתית לכך שדרך ההתנהלות על המסלול "הנכון" של ניהול החיים הכלכליים של משפחה הינה:
א. חתונה.
ב. דירה.
ג. צבירת כסף.
ד. "התקדמות" על ידי "שדרוג" הדירה.
ה. חזרה לשלב ג'.

לתחושה של התקדמות על ידי שדרוג דירה אתייחס אולי במאמר אחר כיוון שזהו נושא מספיק גדול לדעתי.

מאמר זה ינסה לשכנע אתכם לקנות דירה משומשת במצב טוב במקום דירה מקבלן.

בבלוג זה דנתי מספר פעמים בהטיות מחשבה שיש לנו כציבור והדרך של אנשי שיווק מתוחכמים להפעיל אותנו באמצעות הטיות אלו לכיוונים שטובים עבור משלמי שכרם אך לאו דוקא לטובתינו. אתייחס הפעם לסיבות בגינם סבורים אנשים רבים שמוטב לקנות דירה מקבלן וכיצד לדעתי כדאי לכם לנהוג.

אלו הטיות נפוצות בגללן אנשים מעדיפים דירה מקבלן:

דירה מקבלן מגיעה במצב טוב יותר מדירה משומשת

או במילים אחרות "אני עובד נורא קשה. איני רוצה לשלם מעל מיליון שקלים על דירה ואז להתחיל להתעסק עם נזילות, חריקות ודליפות".

בבסיס הנחה זו נמצאת ההנחה שדירה כמו כל מוצר צריכה אחר מתיישנת ומתבלה בקו ישר. כלומר, כל שהיא חדשה יותר יש בה פחות בעיות.

נחשוב על מכונית כדוגמה: כל אחד יודע שמכונית חדשה יקרה יותר אך שיש בה פחות הוצאות תיקונים ממכונית בת חמש. הנחה זו לגבי דירות מוטעית לחלוטין. בניגוד לכל מוצר צריכה אחר המיוצר בכמויות על קו ייצור, דירה הינה במקרים רבים מוצר חד פעמי. הקבלן מקבל תכניות עבודה ומבצע אותן.

תכנית מסוימת הינה לעיתים קרובות תכנית שתבוצע פעם אחת בלבד או פעמים ספורות. בנייד בניגוד למכונית או מקרר לא ניתן לייצר בכמות קטנה לצרכי בדיקות ורק לאחר מכן להתחיל במכירה המונית. אפילו בתוך בניין משותף אחד יכולים הדיירים לדרוש שינויים שונים מהקבלן.

התוצאה הינה ליקויי בניה. דירות חדשות נמכרות כאשר יש בהם ליקויים רבים. כמה דירות חדשות נמכרות עם ליקויים? לדעת חוקרי הטכניון התשובה פשוטה: 100% מהדירות נמכרות עם ליקויי בניה! כלומר, אין אף דירה שנמכרת בישראל במצב תקין. זה נתון כל כך קיצוני עד שהוא נראה מופרך. אבל האם הוא באמת מופרך? דברו עם חברים ומשפחה שקנו דירה מקבלן. תוכלו לשמוע סיפורי אלף לילה ולילה על ליקויי בניה.

לקוח סיפר לי פעם שקבלן אמר לו שהמעלית ננתקעת מפעם לפעם כי היא צריכה "להתרגל לבניין". הפלא ופלא באמת אחרי מספר חודשים המעלית "התרגלה" לבניין והפסיקה להיתקע. האם הייתם מוכנים לקנות מכונית שצריכה "להתרגל" לחום הישראלי ולכן מידי פעם המזגן שלה לא מקרר או האורות שלה לא נדלקים בלילה. בתמונה שלמטה אפשר לראות תמונה של חברה שלנו מפייסבוק. דירה מקבלן בת פחות משנה:

ומה המצב בדירה משומשת?

בדירה משומשת בת מספר מועט של שנים אתם יודעים בדיוק איפה אתם עומדים. בדירה משומשת ישנה, אתם יכולים לבצע באמצעות שיפוץ החלפה של כל התשתית ולקבל משהו שיש לכם שליטה על איכותו. את עלות השיפוץ יש כמובן להוסיף למחיר הרכישה ולקבל החלטה אם הרכישה משתלמת.

רכישת דירה מקבלן משתלמת יותר

קניתי על הנייר דירה מקבלן שקרכשלהו במיליון וחצי שקלים ועכשיו בעת הכניסה לדירה היא שווה כבר 1.8 מיליון. שמעתם משפט כזה מחבר או בת משפחה ? אני מזמין אתכם לחשוב עליו יחד איתי.

הם "הרוויחו" בשלוש שנים 300,000 שקלים. 8,333 שקלים לחודש בלי תוספת של שעת עבודה אחת. כיף.  האמנם?

ראשית תוכלו לשאול אותם איך הם מתכוונים לנצל סכום נכבד זה של מעל רבע מיליון שקלים? אולי טיול בחו"ל? חיסכון לילדים? אף אחד מאלו? מדוע? אה הבנתי זה לא באמת שיש לכם יותר כסף. רק על הנייר יש לכם יותר כסף. אתם רק מרגישים יותר עשירים. אתם לא באמת כאלו. בשנים האחרונות מחירי הדיור עלו בחדות ולכן הייתה תחושה שכל מי שקנה דירה מקבלן הרוויח בשנים עד שקיבל את הדירה. בפועל זוהי כמובן טעות:

א. רוווח אינו נחשב כרווח עד למימושו. כיוון שאין המשפחה עוברת לרחוב כדי לממש את הרווח הוא חסר משמעות (גם דירה אחרת שירצו לקנות אם ימכרו את דירתם, תעלה יותר).

ב. למרות שבחוזה הרכישה מהקבלן כתוב מיליון וחצי שקלים זה לא באמת הסכום ששולם לקבלן. זה רק הסכום שנוח לזוג לזכור כמחיר הדירה. למחיר זה יש להוסיף עלויות שונות שאין בדירה משומשת:

• הצמדות לConstruction input price index אם דחינו תשלומים או עלויות מימון אם שילמנו מראש (טעות אותה תארתי במאמר אחר).
• עלויות שינויים: טובי מומחי המכירות יסבירו לכם שדירתכם לא תהיה ראויה למגורים אם במטבח המגירות לא יכללו מנגנון סגירה שקט. גם אם מעולם לא שמעתם על מנגנון זה, לא תשלמו כולה 5,000 שקלים בשביל ההצלחה? אתם משוגעים, לחיות עם סתם ריצוף? ועוד לא דיברנו על שינויים באמת נחוצים כמו נקודות חשמל, איזה קיר שיש להוריד וכו'.
• מס רכישה בקניה, מס שבח במכירה (בהנחה שיש גם דירת מגורים לזוג).
• עלויות עו"ד בקניה ובמכירה, עלות תיווך.

In February 2015.

Recently, there has been an extensive advertising campaign for the Karmey Gat neighborhood project in Kiryat Gat.

The nature of an advertising campaign created by good professionals is that it shapes public opinion and causes people to consider options they hadn't thought of before.

One of the recurring questions lately is the question regarding Purchasing an apartment in Kiryat Gat for investment.

For those who don't have time to read until the end, I'll start by saying I am unequivocally against it.. For everyone else, I recommend continuing to read to discover why I am against Gindi's "deal of the decade.".

 By the way, I didn't write the article against Carmei Gat, Kiryat Gat, or Gindi. It's simply an example that helps illustrate several decision-making failures made by people who want to invest but don't want to be investors. What I'm writing here can be extrapolated to similar projects in Harish, agricultural land anywhere, etc.

In this article, I have only addressed investors. Regarding purchasing an apartment for residential purposes, the considerations are entirely different, and I may write about that in a separate article.

After the long introduction, it's time to begin.

What is the purpose of the investment?

What is the goal of the investment? This sounds like a simple question, but a wrong answer here leads to wrong decisions. An investor generally looks for two things:

1. Current yield – Receive rent for the apartment he purchased.

2. Property value appreciation potential Personally, I usually ignore this part almost entirely when examining an investment, as price appreciation is speculation that may or may not materialize. If asset value appreciation is something I'm willing to risk, then the stock index has a better chance of increases. Moreover, I try to operate on the principle of profit on the investment at the time of purchase, not at some point in the distant future.

I have a whole article about Calculating the yield on an investment property. Regarding current return, let's say you invest a million shekels and can start receiving the money in a month or in three years. Which would you prefer? Most people wouldn't hesitate to decide that it's better to receive money in a month rather than in three years. Nevertheless, choosing an apartment for investment from a contractor will only yield income in a few years (in the best case) and not immediately, like Investing in a used apartment.

Can the apartment be applied to The Refrigerator Test, Would you be willing to buy a refrigerator for ₪5,000 with the following purchase conditions:

1. The final purchase amount is unknown and may vary.
2. You will receive the product in a few years, but with a possible deviation of a few months and after you pay the full price in advance.
3. The product may differ from what was promised And of unknown quality.

Let's examine section by section in detail:

The purchase amount is unknown Since it includes various attachments, payment to other parties such as an attorney of the contractor And payment for apartment renovations, including various mandatory renovations.

Delivery date is unclear., Check the contract. The contractor sets a date in a few years but also allows for extensions without penalty for months.

The product may differ from what was promised This is also stated in the contract. You can check and see that reducing the size of the apartment by 3% is permitted. The floor plan shown to buyers is "for illustrative purposes only" and is not binding.

There is no logical reason to buy an apartment from a contractor for investment and wait two or three years for a return. However, there are several factors and cognitive biases that push us in this direction:

1. A price that seems cheap to us "A new apartment for under a million shekels? I'll take two..." We're used to looking for apartments in our area and suddenly "discover" apartments that are much cheaper elsewhere. This seems like a good deal to us. But in real estate, unlike other products, the price isn't determined by production costs but mainly by supply and demand, which in Israel stems from the apartment's location. Therefore, if a three-room apartment in Givatayim costs two million shekels and in Kiryat Gat it costs less than a million, it doesn't mean anything about the advisability of the purchase.
2. More on a price that seems cheap and irrelevant data – When we look for a new mobile phone, we check comparisons of device features and prices. Many phone reviews include data such as the number of megapixels in the device's camera, with various tech writers going so far as to state that a certain phone is worse than another because it has "only" 10 megapixels in its camera. Photographers know that the number of pixels in a camera says very little about the quality of the image it produces. However, people have a limited ability to process information, which is why computers used to be measured by "clock speed" and cameras are measured by megapixels, etc. By the way, for me, most of the phone's active hours are spent on GPS, and there is almost no information in technical reviews about the GPS quality of mobile devices.
   How does all this relate to Ginidi and Kiryat Gat? Look at this table – https://gindi-gat.org/index/pp_image  Can a table be presented that is exactly like the "Megapixel" table, meaning a table with more or less meaningless data intended to convince us that purchasing in Kiryat Gat is a good deal? The table shows the price according to a parameter invented for marketing purposes, train travel time. That is, we are supposed to be convinced (and probably will be) that the only parameter related to apartment price is travel time. On the train In Tel Aviv terms of travel time/price in shekels, Gindi in Kiryat Gat is a great deal. Of course, this is a big absurdity and there are many other factors that influence the price. For example, what is the quality of education in Kiryat Gat? (I have no idea).
3. Past events – Everyone knows a friend who bought an apartment in a place no one expected and suddenly its price jumped. Of course, Gindi also knows such places, which is why their marketing approach resembles that of Modi'in. In practice, those who bought an apartment in Modi'in truly enjoyed a sharp increase in their apartment's value. Is this because they "knew how to identify an opportunity"? Not at all, The entire market has risen sharply in the last decade. This is true for Modi'in, Kiryat Ono, Holon, and Afula. By the same token, one could say that what was does not necessarily mean it will continue to be, and therefore, at least from an investment perspective, the likelihood of an apartment's value increasing more in Kiryat Gat than in Petah Tikva is not at all clear.

The three biases listed above can make us forget completely simple facts that every investor should remember:

1. An investment should yield a return.. As an investor in a new location without a kindergarten, grocery store, or traffic light yet, do you have the ability to estimate the rental income that will be received? Assuming that for someone buying an apartment for residence, the legend of a 35-minute train ride to Tel Aviv holds true (I will return to this later), would someone looking to rent also agree to similar conditions?
2. Restless mind – One of the reasons people prefer an apartment from a contractor over a used apartment is the thought that with a new apartment from a contractor, they get "peace of mind." Most people only buy an apartment from a contractor once in their lives and therefore don't have experience with the full meaning of this. They compare buying an apartment to buying a car, for example. With a car, the newer it is, the fewer malfunctions it has. With an apartment, the situation is completely different. According to Technion research 100% (100%!) Apartments are sold with construction defects. This means you only think you bought a finished apartment, but in reality, you'll be seeing a lot of the contractor's people. Unlike with a used apartment, where if you're not satisfied with a professional after a leak repair, you can replace them, with a contractor's apartment, you're always with the contractor's professionals. So yes, there's coverage for labor costs, but what about the lost workdays and the stress? After all, you initially preferred to pay more precisely because of the fear of problems.

Another article on Karmey Gat will be published soon, covering the marketing methods for this project. It will discuss who should consider buying there and who should stay away.

You’ve worked hard and found what you were looking for. You've found an apartment that suits you and have begun negotiations with the contractor. One of the first things that will come up will be the timing of payments for the apartment. The contractor will usually offer you three options:

A. Pay a lot of money today and you'll get the apartment in two years (as an example).
Pay a small down payment today, and as construction progresses, make additional payments at pre-determined dates.
c. Pay a deposit today and the balance upon receiving the key.

The contractor's proposal to pay the majority of the money upfront includes a seemingly logical reason – if you pay today, you won't be exposed to an increase in the apartment's price due to the construction input index. When paying above One million shekels Regarding any product, especially if we don't have the money and are taking out a loan for many years, another price increase is a frightening thing. Is there a reason for this fear? Are there other factors that could cause a price increase even higher than the construction input index? This article will try to clear the fog surrounding the concept of the construction input index and show that despite the natural fear which the contractor's salesperson and the bank's mortgage salesperson will try to amplify, each for their own reasons, the monster is not so terrible.

What are the construction input index and the consumer price index?

Input is an economic resource used to create something else of economic value. For example: The inputs required to produce a chocolate milk cup are: water to irrigate the hay eaten by the cow, fuel to power the tractor that harvests the hay, property taxes on the barn, wages for the milkers, electricity to operate the milking parlor, and then additional inputs for the production itself (sugar, flavorings, more electricity), production, transportation, and sale.

In the same way, the inputs for building an apartment are blocks, rebar, cement, labor wages, fuel, electricity, etc. Consumer Price Index Calculated based on the average prices of goods consumed by households (milk as mentioned, lettuce, tomato, DVD, and more according to the Central Bureau of Statistics). The construction input index is the average of the prices of the goods (inputs) required to build an apartment.

So the contractor's logic is: if you give me the full cost of your apartment today, I'll be able to buy all the necessary iron and blocks today, and then I won't care if their prices go up. On the other hand, if you don't pay me the cost of the apartment in advance, I'll have to postpone the purchase of, for example, the doors until the final stage of the apartment, and then if the price of a door changes, I, Moshe the contractor, will be in trouble. Therefore, if you want to postpone payments, you must guarantee me that if the prices of doors and windows increase, you will compensate me for this price increase.

Prepaying due to indexation can be expensive and not worthwhile.

I am not currently going into all the pros and cons of making advance payments to a contractor. For additional considerations You can read about the pros and cons of early payments here. But from an economic perspective, it is worth knowing that the damage from an increase in the construction input index is often lower than the damage from early payment.

Let's consider a couple buying an apartment for 1.5 million shekels and they have two options:

A. 20% of the apartment's current price and 80% of the apartment's price in two years upon receipt of the keys.
B. 80% of the apartment's current price, 20% in two years when the keys are handed over.

That couple is not one to believe every salesperson, so they conduct their own research on the Central Bureau of Statistics website and examine the two graphs below, which compare the increase in the construction input index to the general index (Consumer Price Index).

The Consumer Price Index and the Construction Input Price Index in 2021

Please note that the Central Bureau of Statistics has not made it easy for us to compare the graphs; the bars in the top graph represent 0.5%, while those in the bottom graph represent 1%. Let’s move on to comparing the last few years (all percentages are approximate based on the graphs above):

2013: Consumer Price Index – close to 21% year-over-year, Input Price Index 1.51% year-over-year – those who feared the Input Price Index Lost.
2012: The price index was approximately 1.6%, and the input index was approximately 3.4% – those who feared the input index Earn.
2011: The price index was approximately 2.1%, and the input index was approximately 3.8% – those who feared the input index Earn.
2010: Consumer Price Index (CPI), approx. 2.81% | Input Price Index, approx. 41% – Those who feared the Input Price Index Earn.
2009: The price index was approximately 4%, the input index was approximately 0% (!) – those who feared the input index Lost.
2008: The price index was approximately 3.9%, and the input index was 3.4% – those who feared the input index Lost.

Actually, why do I recommend not to fear the cost index if in most of the past years, those who feared it "profited"?

The comparison between the two metrics is based on two simplifying assumptions that are not actually met in practice:

A. I don’t earn anything on my bank savings other than indexation to the Consumer Price Index. This is true for short-term deposits, but it is definitely not true for savings of hundreds of thousands of shekels, such as those held by someone preparing to buy an apartment. For example, if I withdraw from a study fund—which yields a modest 5.1% per year—to make an advance payment to a contractor, the index rates above show that this is never a good idea.

B. I don’t pay interest on my credit. In practice, if I add 1.51% annual interest to the Consumer Price Index, as is done with actual loans, the differences between the indices—even in years when the Input Price Index supposedly has an advantage (2010–2012)—become negligible, or the trend reverses entirely.

Numerical example:

Let's take the year 2012, when there was a preference for bettors on the construction input index. A couple who will be called Inputs They purchased an apartment for 1,500,000 shekels with a mortgage of 1,000,000 shekels. The couple chose to pay 80% upon signing the purchase contract and another 20% upon Entrance to the apartment A year later.

The couple's total expenses this year:

— Loss of indexation on 200,000 NIS (300,000 = 20%, which he would have paid the contractor anyway under the second option) for one year – 2,900 NIS.

— Let’s assume that the couple’s repayment capacity is 6,000 NIS, so they took out an 18-year fixed-rate mortgage at an interest rate of 3%. Over the course of the year, they paid the bank 29,400 NIS in interest. In total, the couple will pay the bank 1,295,400 shekels For their mortgage.

On the other hand, the couple known as the Meddis decided to pay the contractor 20% upon signing the contract and another 80% upon moving into the apartment

The trading of indices looks like this:

A payment of 300,000 and continued holding of 200,000 in an index-linked deposit which yielded them 2,900 shekels.

A monthly saving of 6,000 shekels (they are not yet obligated to mortgage payments and therefore can save the repayment amount each month).

— Upon moving into the apartment, the couple took out a mortgage to pay the remaining 80% of the apartment’s price. This 80% was indexed to the construction input index, but the couple also saved 6,000 shekels each month. To simplify the calculation, I assumed that the monthly savings did not yield any return. The mortgage the couple needed to take out was 965,900 shekels (as mentioned, the debt to the contractor was indexed, but on the other hand, the couple had accumulated Equity (added during the year). Assuming the indexed couple's mortgage will be under the same terms as the taxed couple's, their total payments to the bank will be 1,237,054 Shekels.

So, should I prepay the contractor or not?

 Well, we saw that even in the year when there was supposedly a clear preference for paying the contractor in advance, the person who paid upon entering the apartment and absorbed most of the construction input index linkage still ended up paying less money than the one who chose "not to take a risk" with the construction input index.

Many couples do not have the ability to pay a mortgage at the same time as rent, and then if they choose To pay the contractor in advance They "benefit" from higher damage – they are forced to take out a balloon loan until they move into the apartment (eviction from their current apartment). This balloon loan accrues compound interest, and thus, eventually, even on the day they move into the apartment, and not just at the end of the mortgage, they may find that they have paid more than those who chose to pay later, despite the construction input index.

The example above compared two scenarios where the difference between early and late payers is only one year. In most cases, the difference is at least two years when buying an off-plan apartment. Of course, as the time period lengthens, the advantage for those who chose to pay later increases. The advantage for those paying later will grow even more if, for example, their savings over those two years cause them to fall below one of the mortgage price thresholds. For example, they will move from a loan-to-value ratio of 65% to a loan-to-value ratio of 59% of the apartment’s value.

In addition to all of the above, one must also add the risk inherent in any transaction where you pay a vendor a large sum of money in advance. However, as mentioned, this has already been discussed elsewhere on this site.

Why do so many people actually pay contractors in advance, paying more, and risking that if the contractor has any problems, they will have to manage without the money paid for years?

Unfortunately, many people have not internalized the simple fact: There is no free advice! When you consult with a bank's mortgage officer or a contractor's salesperson, it is not free advice. Although you haven't paid directly, you will pay much more by receiving biased advice: the contractor's salesperson naturally aims for the contractor to get the money as quickly as possible (why should they pay interest to the bank if the customer is willing to pay interest to the bank instead and give them a million-dollar loan with no interest at all). The mortgage officer, of course, wants you to take out a mortgage today and not in two years (by then you might notice that there are other banks and compare conditions, or worse, learn which mortgage tracks to avoid, thus becoming less profitable customers, God forbid).

Buying an apartment from a contractor differs from purchasing a second-hand apartment in several aspects. This article will discuss two of the many aspects of a deal with a contractor:

The fact that the apartment will be provided a relatively long time (one to three years) after signing the contract.

2. Contractor's proposal for advance payments.

When signing a contract for purchasing an apartment from a contractor, you usually receive a "streamlining offer" from the contractor: instead of paying according to the usual payment schedule, take out a mortgage today, take advantage of the good interest rates, and save on indexation. Construction input index Let's say they pay 80% of the apartment's price upfront and 20% upon receiving the key.

For a client concerned about paying their mortgage at the same time as the rent for their current apartment, the bank offers a grace period loan: a mortgage for which no payments are required for two to three years.

There are differing opinions on the advisability of advancing payments. I personally am against advancing payments, but I will try to present the advantages of advancing payments as well.

Advantages of prioritizing payments: 

• As mentioned, advancing payments allows for greater certainty regarding the total cost of the apartment – advancing the payment secures a certain price and eliminates exposure to the construction input index. 
• There's a thought that interest rates cannot go lower than the current level. Therefore, taking a mortgage today Get a mortgage with a lower interest rate.

Disadvantages of making advance payments to a contractor: 

• Risk:  Most people would not agree to pay the full price for a refrigerator before receiving it. So if 8,000 NIS is not paid before receiving the goods which are expected in two weeks, why pay 2 million NIS for goods expected in two years? Apparently, The Law for the Sale of Apartments, A bank guarantee protects the customer. In practice, a bank will not be thrilled to pay 50 apartment buyers from a particular contractor one million NIS each (as an example). This means the process of getting money back will involve payments to a lawyer and the need for a court order, which can take a long time. In the event that the buyer does not receive the apartment as promised in the contract, the situation for buyers who did not pay in advance will be much better than for those who will need a refund from the bank.
• Monetary cost: Advancing payments has a cost that the customer, many times, does not take into account. If we take, for example, a mortgage of half a million NIS with partial grace (interest and linkage are paid, principal is not paid) for two years, the total interest and linkage payments during these two years will be approximately NIS 49,000. Full grace will activate the compound interest mechanism, which will cause an even higher cost. If the customer does not need the mortgage but pays the advance payment out of pocket, he loses the interest and linkage that the bank would have paid him for these two years.
  

If you nevertheless choose to prepay the contractor

Despite my strong recommendation against prepaying, I assume there will be those who wish to do so. If you choose to prepay, you should enjoy it. Back to the refrigerator example: it's quite clear that you'd ask for a discount for cash. So why wouldn't you get a discount for a large, two-year upfront payment? The contractor will, of course, say that waiving the indexation is your discount. This is an insufficient discount. You can think of it this way: your early payment allows the contractor to buy all the blocks he needs today instead of in two years, and therefore he is not exposed to cost changes either. Neither of you has the risk of price increases, but only the customer pays for the risk removal (we saw earlier that the cost can easily be 50,000 NIS or even more).

What discount can you get for paying in advance? This, of course, depends on your negotiation ability with the contractor. You can check the contractor's cost of capital to understand what order of magnitude you can ask for and receive. To identify the contractor's estimated cost of capital, you can check if they are a publicly traded company that has issued bonds. Obtaining information on a private company is much more difficult, but you can assume that a certain industry behaves similarly, meaning that if you take a contractor of a similar size to yours whose bonds are traded on the stock exchange, the costs will be similar.

If we see (you can check the stock exchange website or ask an investment advisor at your bank branch) that your contractor’s bonds are trading on the stock exchange with a guaranteed interest rate of 5%, for example, this means the contractor is willing to pay his bondholders an interest rate of 5% in exchange for their money. Alternatively, the contractor could take your money and buy back his own bonds to stop paying the 5%. The fact that he does not do so indicates that, from his perspective, cash is worth 5%.

There’s no reason why you shouldn’t receive at least 5% in the form of a price discount in exchange for paying your contractor in advance.  5% out of 1.5 million shekels amounts to 75,000 shekels. This is a substantial sum that you can consider compensation for the risk you took by making the payment in advance.

What’s more, at different stages of the project, the contractor faces various pressures. Just as you feel pressure before getting a mortgage (we’ll get to that later) and are required to show the bank your income to prove you can pay the mortgage, the bank also imposes various requirements on the contractor. When a project has bank financing, the contractor knows they can get better terms from the bank if they demonstrate lower risk. The best way for the contractor to demonstrate low risk is by stating: 30% of the apartments were already sold before the building permit was issued. Therefore, if the project is in its early stages, the contractor may be more flexible in order to demonstrate high sales.