What is the indexation to the construction index on new projects or Tama 38 in Israel?

In a Future State of Completion Sale transaction (called VEFA), the purchase price stipulated in the contract is frequently lower than that which will actually be paid by the purchaser.
Considering that the real estate project usually takes several months or even years, it is customary for the purchase price to be indexed to an index in order to remain adapted to the evolving reality of the real estate market and the building.

What is the indexation applied to the amount of acquisitions in VEFA?
How is it calculated?
What has been its evolution in recent months?

The Israeli National Bureau of Statistics publishes monthly the various market price indices, such as the consumer or construction index.
These indices are intended to measure price differentials from month to month.

What are the existing building indices on new projects in Israel?
There are two types of construction index:
The housing construction index, applied primarily for private transactions;
The construction index for commercial and office space, applied primarily for business transactions.

What is the point of building indices on real estate projects in Israel?
How are they calculated?
The indices aim to publicize market price fluctuations in the construction sector in Israel.
Over a period of time, they determine changes in prices for the purchase of materials, services and products based on a pre-defined list of essential elements in the construction sector.

For example, prices of materials such as marble, ceramics, steel, wood and electrical equipment, plumbing, waterproofing, freight transport costs, equipment and vehicle rentals, employees and technicians, insurance etc…
This assessment is carried out by experts from the National Bureau of Statistics who regularly study changes in their prices.

In other words, the increase in the israeli construction index is synonymous with the increase in the expenditure incurred by builders in order to bring the project to fruition.
Conversely, when the index goes down, the amount of these expenditures has been reduced.
In order to determine the change in the index over a period of time, it is necessary to calculate the difference between the base index stipulated in the contract and the index applied on the day of the actual payment by the purchaser.

What has been the evolution of the construction index in recent years in Israel?
On the 15th of each month the Israeli National Bureau of Statistics publishes the index in force in the previous month.
At the beginning of each calendar year it is therefore possible to establish what indexation has been applied over the past year.

Based on the information in our possession when this article is published (June 2019).

Clarification: The information contained in this article engages only the editor and cannot be substituted for specific legal advice. They are only valid on the date of their writing.

Master Yonathan TSADIKA
+ 972 (0) 50 486 34 76
yonathan@tsadika.co.il