Construction Inputs Index – The Complete Guide for 2023

The Construction Inputs Index has a great impact on home buyers before they make a sale transaction on a new apartment. Any increase in this index is liable to generate an increase in prices in the construction industry and, as a result, an increase in the prices of residential apartments. How important is it really to relate to the construction input index when we come to purchase a new apartment? What is the Construction Inputs Index? Can we protect ourselves from an increase in this index? And what, in general, is important to know about the Construction Inputs Index in Israel?

What is the Construction Inputs Index?

The Residential Construction Input Index is a mathematical calculation that weights the fluctuations in the construction costs of residential apartments. These fluctuations are caused by changes in the prices of various building materials, such as: iron, concrete, cement and other materials. It is important to note that changes in the prices of building materials occur every month. When you come to buy an apartment from a contractor, an apartment that is only on paper, the price of the apartment is linked to the residential construction input index because the construction process of an apartment tower takes a long time. Precisely for this reason, the contractor is also exposed to changes in the prices of the building materials he needs in the process. In order for the contractor to maintain a profit level that justifies the project, he embodies the expected fluctuations in the construction input index in the price of the apartments he sells.

Calculating the Construction Inputs Index

In order to calculate the construction input index, it is necessary to sample the prices of the various materials from a number of wholesalers and manufacturers, who supply the materials to the construction industry. After the test is performed, the average price of the basket of materials is determined, and it is the basis of the index. The change in the CPI is, in fact, the percentage of increase or decrease in the prices of raw materials in the previous month. When a sale agreement is signed with a contractor, when the construction process itself has not yet begun or has not yet been completed, the balance of the payment, or part of it, after deducting the advance you paid, will be linked to the construction input index, with the contractor’s goal of generating compensation against the increase in the prices of construction inputs. As far as the buyers are concerned, this is, of course, transferring the risk to them, they are the ones who will finance the price fluctuations and gaps that will be created.

How can I know the rate of the index?

The Construction Inputs Index is captured every 15th of the month by the Central Bureau of Statistics. The index deals with changes in the prices of raw materials that are regularly needed for construction (iron, cement, concrete, quarry materials), as well as products and services used by construction contractors for the construction process of a residential building. The role played by the index is to reflect the construction expenses of the developers’ and subcontractors’ contractors, who provide them with various services. The Construction Inputs Index is an anchor to which construction contracts are attached from the stage of signing a sale agreement until the total payment is paid. There is a central assumption that the prices are linked to the construction inputs index, and it holds that as long as the contractor has not received the full amount of money, he absorbs the fluctuations in the costs of raw materials and services that he uses. At Mani Group, we are well aware of this phenomenon, as a company that deals with the purchase of land for income-producing projects.

The Construction Yields Index also functions as a compass that signals to all those engaged in the craft, the trends and changes expected in the industry. In order to reach the most accurate index, the prices of the services and materials intended for contractors from all over the country are directly examined. The prices examined are the prices payable, paid by the developer contractor and the subcontractors to the wholesale suppliers. It can be said that the Construction Inputs Index is responsible for estimating the costs of residential construction at a specific point in time. After examining all the prices of the various raw materials and services, a basket price (services and materials) is determined, reflecting the differences between the current month and the previous month.

How does the index affect the prices of residential apartments?

The Construction Inputs Index has undergone a change in trend, which has managed to be maintained for some time. If in the past the CPI would have risen between 2 and 4 percent per year today, the CPI is only rising by 0.5 to 2 percent per year. This rate of increase has been maintained for quite some time, however, the index is constantly on the rise, which means an increase in real estate prices. At this stage, each raw material has a certain cost, according to which the contractor prices its expenses. However, a construction project takes three to four years, and therefore, there is a high chance that the cost of materials will change and the construction input index will increase accordingly and affect the contractor’s construction costs. Such an event could create a significant offset for the contractor in the project’s profitability, in the best case and financial losses, in the worst case. For this reason, contractors engaged in residential construction tend to link the sale of the property to the construction inputs index. This action creates a kind of protection against losses and maintaining profitability for the contractors, but it is the apartment buyers who absorb this.

It is important to note that the residential construction input index is linked only to the remaining balance of payment, after payment

The advance to the contractor.

Unanswered Problem

It is clear to everyone that the fact that every residential real estate project is linked to the Construction Inputs Index creates great problems on a number of levels. It can be said that there is no unequivocal and accurate way to track changes in the index. This index does not make it possible to attach funds to it, as is customary in the CPI, because it does not carry a measurable and logical return. Therefore, it is not an index that protects consumers from volatility and value increases. Therefore, the public of apartment buyers in Israel is constantly in a kind of uncertainty regarding the final price of the apartment they purchase from a contractor.

The starting point for home buyers

The situation described below creates, as mentioned earlier, uncertainty among the buyers of new apartments from the various contractors. But, is there a way to make a good assessment of the expected changes in the construction inputs index? This will ease the sense of uncertainty of the buyers a little. In general, it can be said that it is advisable to pay as high a down payment as possible, since only the balance of the payment will be exposed to fluctuations in the construction yield index. However, paying a large down payment to the contractor requires that the buyers have a significant amount of money, and since most buyers take out a mortgage to finance the purchase, they will face an increase in the cost of their mortgage due to taking it earlier, in order to finance the large down payment. Therefore, it is necessary to check when you will pay less, whether when you pay a large down payment and save on the construction inputs index, or if you take out the mortgage earlier, you will pay more money at the end of the road, and therefore, it may be better to be exposed to changes in the index and pay a regular down payment. It should be noted immediately that the answer to this question is not unequivocal.

It is true that there are various tools that make it possible to monitor the current mortgage interest rate as of the day it is taken, and on the other hand, it is possible to track, in one way or another, the construction input index as well, but these are inaccurate forecasts and tools that do not provide an accurate solution, and therefore, it is not really possible to predict the future changes properly. To this we must add the following, the issue is not only economic because many people rightly believe that the lowest possible advance should be paid to the contractor, since there is no complete certainty that the contractor will comply with all the terms of the agreement and provide the required consideration. The later the payment, the higher the level of certainty regarding the receipt of the consideration.

Not Everything Is Black – Amendment 9 to the Sale Law

In June 2022, an amendment to the Sale Law was enacted, which affects the calculation of the linkage of the construction inputs index and the price of apartments and houses. This is an amendment to the law that states that only 40 percent of the total price of an apartment will be linked to the construction input index. The logic behind the amendment is that there is no reason to calculate the construction input index on the cost of land, which is a significant component of the transaction price. In other words, the buyers pay an acceptable down payment of 20% of the price of the property, which is paid at the time of signing the sale agreement. The down payment is exempt from calculating the construction inputs index. The balance of payment will be linked to this index, however, only 50% of the balance payable will be linked to the construction inputs index. In the overall calculation, this means that only 40% of the property’s price is linked. In addition, the amendment stipulates that the linkage will continue until the day the property is delivered to the buyers.

Per Metric and Payment Calculator

Since the internet, it can be said that every complex calculation has a simple calculator. There is also a special calculator for calculating the construction expenses of the entrepreneurial contractors and subcontractors, which calculates the construction input index for them. The calculator gives a good indication of the level of expected monthly costs for contractors, and therefore, you will be able to arrive more prepared for the ongoing transaction. The calculator calculates the addition of the indexation against the change in the value of the index, from the date of the beginning of construction to the date of its completion. The numbers of these two values must be multiplied by each other, which will provide you with the monetary value at the end of the period. The calculator is based on data from the Central Bureau of Statistics, and it can be said that these are the most up-to-date data that can be obtained.

For a No-Obligation consultation
For a No-obligation consultation

Construction Inputs Index – The Complete Guide for 2023

  • Share with friends:

The Construction Inputs Index has a great impact on home buyers before they make a sale transaction on a new apartment. Any increase in this index is liable to generate an increase in prices in the construction industry and, as a result, an increase in the prices of residential apartments. How important is it really to relate to the construction input index when we come to purchase a new apartment? What is the Construction Inputs Index? Can we protect ourselves from an increase in this index? And what, in general, is important to know about the Construction Inputs Index in Israel?

What is the Construction Inputs Index?

The Residential Construction Input Index is a mathematical calculation that weights the fluctuations in the construction costs of residential apartments. These fluctuations are caused by changes in the prices of various building materials, such as: iron, concrete, cement and other materials. It is important to note that changes in the prices of building materials occur every month. When you come to buy an apartment from a contractor, an apartment that is only on paper, the price of the apartment is linked to the residential construction input index because the construction process of an apartment tower takes a long time. Precisely for this reason, the contractor is also exposed to changes in the prices of the building materials he needs in the process. In order for the contractor to maintain a profit level that justifies the project, he embodies the expected fluctuations in the construction input index in the price of the apartments he sells.

Calculating the Construction Inputs Index

In order to calculate the construction input index, it is necessary to sample the prices of the various materials from a number of wholesalers and manufacturers, who supply the materials to the construction industry. After the test is performed, the average price of the basket of materials is determined, and it is the basis of the index. The change in the CPI is, in fact, the percentage of increase or decrease in the prices of raw materials in the previous month. When a sale agreement is signed with a contractor, when the construction process itself has not yet begun or has not yet been completed, the balance of the payment, or part of it, after deducting the advance you paid, will be linked to the construction input index, with the contractor’s goal of generating compensation against the increase in the prices of construction inputs. As far as the buyers are concerned, this is, of course, transferring the risk to them, they are the ones who will finance the price fluctuations and gaps that will be created.

How can I know the rate of the index?

The Construction Inputs Index is captured every 15th of the month by the Central Bureau of Statistics. The index deals with changes in the prices of raw materials that are regularly needed for construction (iron, cement, concrete, quarry materials), as well as products and services used by construction contractors for the construction process of a residential building. The role played by the index is to reflect the construction expenses of the developers’ and subcontractors’ contractors, who provide them with various services. The Construction Inputs Index is an anchor to which construction contracts are attached from the stage of signing a sale agreement until the total payment is paid. There is a central assumption that the prices are linked to the construction inputs index, and it holds that as long as the contractor has not received the full amount of money, he absorbs the fluctuations in the costs of raw materials and services that he uses. At Mani Group, we are well aware of this phenomenon, as a company that deals with the purchase of land for income-producing projects.

The Construction Yields Index also functions as a compass that signals to all those engaged in the craft, the trends and changes expected in the industry. In order to reach the most accurate index, the prices of the services and materials intended for contractors from all over the country are directly examined. The prices examined are the prices payable, paid by the developer contractor and the subcontractors to the wholesale suppliers. It can be said that the Construction Inputs Index is responsible for estimating the costs of residential construction at a specific point in time. After examining all the prices of the various raw materials and services, a basket price (services and materials) is determined, reflecting the differences between the current month and the previous month.

How does the index affect the prices of residential apartments?

The Construction Inputs Index has undergone a change in trend, which has managed to be maintained for some time. If in the past the CPI would have risen between 2 and 4 percent per year today, the CPI is only rising by 0.5 to 2 percent per year. This rate of increase has been maintained for quite some time, however, the index is constantly on the rise, which means an increase in real estate prices. At this stage, each raw material has a certain cost, according to which the contractor prices its expenses. However, a construction project takes three to four years, and therefore, there is a high chance that the cost of materials will change and the construction input index will increase accordingly and affect the contractor’s construction costs. Such an event could create a significant offset for the contractor in the project’s profitability, in the best case and financial losses, in the worst case. For this reason, contractors engaged in residential construction tend to link the sale of the property to the construction inputs index. This action creates a kind of protection against losses and maintaining profitability for the contractors, but it is the apartment buyers who absorb this.

It is important to note that the residential construction input index is linked only to the remaining balance of payment, after payment

The advance to the contractor.

Unanswered Problem

It is clear to everyone that the fact that every residential real estate project is linked to the Construction Inputs Index creates great problems on a number of levels. It can be said that there is no unequivocal and accurate way to track changes in the index. This index does not make it possible to attach funds to it, as is customary in the CPI, because it does not carry a measurable and logical return. Therefore, it is not an index that protects consumers from volatility and value increases. Therefore, the public of apartment buyers in Israel is constantly in a kind of uncertainty regarding the final price of the apartment they purchase from a contractor.

The starting point for home buyers

The situation described below creates, as mentioned earlier, uncertainty among the buyers of new apartments from the various contractors. But, is there a way to make a good assessment of the expected changes in the construction inputs index? This will ease the sense of uncertainty of the buyers a little. In general, it can be said that it is advisable to pay as high a down payment as possible, since only the balance of the payment will be exposed to fluctuations in the construction yield index. However, paying a large down payment to the contractor requires that the buyers have a significant amount of money, and since most buyers take out a mortgage to finance the purchase, they will face an increase in the cost of their mortgage due to taking it earlier, in order to finance the large down payment. Therefore, it is necessary to check when you will pay less, whether when you pay a large down payment and save on the construction inputs index, or if you take out the mortgage earlier, you will pay more money at the end of the road, and therefore, it may be better to be exposed to changes in the index and pay a regular down payment. It should be noted immediately that the answer to this question is not unequivocal.

It is true that there are various tools that make it possible to monitor the current mortgage interest rate as of the day it is taken, and on the other hand, it is possible to track, in one way or another, the construction input index as well, but these are inaccurate forecasts and tools that do not provide an accurate solution, and therefore, it is not really possible to predict the future changes properly. To this we must add the following, the issue is not only economic because many people rightly believe that the lowest possible advance should be paid to the contractor, since there is no complete certainty that the contractor will comply with all the terms of the agreement and provide the required consideration. The later the payment, the higher the level of certainty regarding the receipt of the consideration.

Not Everything Is Black – Amendment 9 to the Sale Law

In June 2022, an amendment to the Sale Law was enacted, which affects the calculation of the linkage of the construction inputs index and the price of apartments and houses. This is an amendment to the law that states that only 40 percent of the total price of an apartment will be linked to the construction input index. The logic behind the amendment is that there is no reason to calculate the construction input index on the cost of land, which is a significant component of the transaction price. In other words, the buyers pay an acceptable down payment of 20% of the price of the property, which is paid at the time of signing the sale agreement. The down payment is exempt from calculating the construction inputs index. The balance of payment will be linked to this index, however, only 50% of the balance payable will be linked to the construction inputs index. In the overall calculation, this means that only 40% of the property’s price is linked. In addition, the amendment stipulates that the linkage will continue until the day the property is delivered to the buyers.

Per Metric and Payment Calculator

Since the internet, it can be said that every complex calculation has a simple calculator. There is also a special calculator for calculating the construction expenses of the entrepreneurial contractors and subcontractors, which calculates the construction input index for them. The calculator gives a good indication of the level of expected monthly costs for contractors, and therefore, you will be able to arrive more prepared for the ongoing transaction. The calculator calculates the addition of the indexation against the change in the value of the index, from the date of the beginning of construction to the date of its completion. The numbers of these two values must be multiplied by each other, which will provide you with the monetary value at the end of the period. The calculator is based on data from the Central Bureau of Statistics, and it can be said that these are the most up-to-date data that can be obtained.

  • Share with friends:
Consultation without obligation:
Check out these related articles:
Free consultation
Sign up to our Newletter

Financial Investments
Baloon Loan
Mortgage Equity
Blog

Facebook Linkedin
Privacy Policy
Accessibility Statement
Terms of Use
All rights reserved to Meny Group