Behind the promises of a new apartment lies a deal that could become a serious financial risk for families in Israel..
“What seems like the safest way to an apartment in Israel could become one of the riskiest deals for the average family.”
This sounds like the surest way to get an apartment in Israel, but for many, purchasing an apartment “on paper” becomes the starting point of a much riskier financial path than what appears in the developers’ shiny prospectuses.
In a market where prices are high, promises are big, and the pressure to "jump on an opportunity" is only increasing, more and more families are discovering that the gap between the plan on paper and the reality on the ground can reach tens and hundreds of thousands of shekels, and sometimes even years of delay and uncertainty.
What seems like a smart deal can easily turn into a financial trap that tests not only the pocketbook, but also the ability of families to meet double payments: rent now and a mortgage in the future.
In recent years, more and more apartment buyers in Israel have entered into apartment transactions “on paper,” purchasing at the planning or excavation stage, well before delivery. According to industry estimates, about 20% or more of the transactions in the new apartment market are made in the early stages of construction.
On the surface, the advantage is clear: a lower price than a ready-made apartment, sometimes a difference of about 10%–15%, the ability to choose specifications and a gradual payment plan. In addition, in a period of rising prices, some hope to see a value increase of about 20%–30% by the time of delivery, especially in projects that last 2–4 years.
But alongside this promise, there are real risks. One of the main ones is delivery delays: a delay of a year or more is not uncommon in the Israeli market. At the same time, buyers sometimes continue to pay monthly rent of 4,000–7,000 NIS, while simultaneously preparing for a long-term mortgage of 25–30 years.
Another problem is the uncertainty about the final costs. Changes in specifications, construction additions, or an increase in the construction input index can add tens of thousands of shekels to the final price.
But the really big risk emerges when contractors and developers run into financial difficulties.
In recent years, the Israeli real estate market has provided quite a few examples of this. The group Hanan Mor It ran into heavy debts amounting to billions of shekels after aggressive investments in land and large projects, and was forced to sell assets and enter into debt arrangements to stabilize its operations. Its major projects also experienced delays and changes resulting from the financial pressure.
Other large companies have also experienced volatility and pressures: דניה סיבוס, for example, faced a decline in profitability in some activities due to high financing costs and increasing competition in the industry. Ashtrom reported profitability erosion in certain projects, while Housing and Construction Dealt with exposure to complex projects and high volatility in results.
Alongside the large companies, the more significant problem lies in the broader stratum of small and medium-sized entrepreneurs and contractors. In an industry where financing is expensive, dependence on early sales is high, and any delay in the market is liable to disrupt cash flow, even projects that appear stable can run into difficulties. In recent years, hundreds of cases of collapse or insolvency of contractors have been reported, mainly in small and medium-sized projects.
In this reality, the apartment “on paper” transforms from a simple investment product into a move with layers of risk: market, financing, execution, and trust.
Still, the market continues to thrive. The reason is simple: For many young couples, this is almost the only way to enter the housing market. The question is whether this is a real economic opportunity, or a well-calculated gamble, where the hope of an increase in value sometimes outweighs the actual risk.
Is there a transaction risk? 15 85 Including linkage interest
You didn't mention the biggest risk, which is the length of time it takes to sell an existing apartment, which is a year and a half. And if you don't succeed, you also have to pay an 8 percent purchase tax and finance the balance of the purchase...
I have a feeling that almost everyone who enters this adventure is expecting a subprime like in the United States, where citizens did not pay their mortgages, contractors collapsed, and the banks, as usual, will turn to the state to solve the problem, like in the United States 15 years ago and the borrowers celebrated. What's more, in Israel, it is enough to threaten the government that they will not vote in the upcoming elections and help in the form of bank shares, we said.
I didn't understand. There is a bank that is a lender to the project and every payment that is made provides a bank guarantee. This is the law.