What is the Construction Cost Index?
The Construction Cost Index reflects estimated changes in building costs, with the two main inputs being the cost of materials and the cost of labor. The index is published by the Central Bureau of Statistics (CBS) every month on the 15th of the month, with reference to the previous month.
This Construction Cost Index is important to contractors and developers who build homes, but it is equally relevant to buyers of new homes since during the construction process home prices are linked to the index. For many years there were no significant changes in the index, and it was considered to be somewhat negligible, however, in recent years as a result of the COVID-19 pandemic and the war between Russia and Ukraine, there has been a global increase in the price of goods required for construction, primarily iron, and during Covid, significant restrictions on the ability to transfer manpower from one country to another. These two trends had a dramatic impact on construction costs in Israel, which caused the index to rise sharply at the time and led to many buyers having to pay a final price that was 8% or even 10% higher than their original purchase price.
In August 2022, the Knesset approved an amendment to the “Sales Law” which protects home buyers, so that no more than 40% of the apartment price set in the contract may be linked to the Construction Cost Index.
This guide is intended to provide the reader with general information and not to serve as legal or other professional advice. Readers are advised to obtain advice from qualified professionals before entering into any real estate transaction.
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