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New apartments in Israel have become even more expensive, as suggested by the monthly Central Bureau for Statistics (CBS) residential construction index which examines the costs of building materials.

The index is designed to ensure that, for projects that may take several years from initial design and pricing to delivery, any significant changes in material costs can also be adjusted. Any off-plan purchase will generally have a contractual clause that links the final price to the construction index at the point of delivery. This means that any increase in the index directly leads to higher house prices.

Manufacturers themselves are already signaling that they are under pressure from rising commodity prices.

Last month, the general index of residential construction increased by 1%. For an apartment costing 2 million NIS ($620,688), expenses for buyers have just increased by 20,000 NIS ($6,200).

Since March 2021, the construction cost index has increased by 6.6%, adding about NIS 132,000 ($41,000) to the cost of an average apartment.

These increases relate mainly to materials and products used in the construction of houses and the rental of equipment and vehicles (including fuel costs) for construction sites. There are global pressure continues on these costswith disrupted shipping worldwide and the Russian war in Ukraine having a major impact on energy prices, all adding to overall costs.

Norman Shapiro of First Israel Mortgages told The Times of Israel that it is increasingly common for housing contracts to ensure that regardless of how advance payments are made, any increases in construction costs are applied to the entire cost of the housing unit, not just in relation to the outstanding amount. So even if most of the apartment is paid for, there may well be a substantial final payment to reflect construction price inflation.

“Builders enter into contracts where you can pay off the balance at any time, but the building index is still effective against the final price of the property,” he said.

In addition, the Bank of Israel not only raised interest rates by 0.25%, but also signaled that it expects further increases of up to 1.5% over the coming year .

Mortgage borrowers who don’t have a fixed rate will likely see their loan increase, adding tens of thousands of shekels to the cost of buying a home. The new fixed rates will be proportionally higher and the prices of apartments on the second-hand market will also be significantly affected.

According to a separate CBS report earlier this month, housing prices in Israel rose 15.2% between January-February 2021 and January-February this year, marking a sharp 12-month rise in an already housing market. brutal defined by growing demand and insufficient supply.

According to the CBS report, prices for new apartments increased by 17.8% in January and February 2022 compared to the same period last year, increasing by just over 5% from December 2021 alone. Demand was highest in Tel Aviv-Jaffa, Bat Yam, Jerusalem, Ashkelon, Netanya and Rishon Lezion.

Finance Minister Avigdor Liberman said in December that house prices would “moderate” by the end of 2022 and that he thinks Israelis may even see prices come down in years to come. Outrage over soaring housing prices and the rising cost of living has been growing across the country, more than a decade after Israel last experienced widespread social unrest over the issue.

As the recent massive oversubscription for the government’s first housing lottery of the year indicated, there is huge pent-up demand for affordable housing.

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