Buying New Construction vs. Resale in Israel
In Israel, buying from a developer (kablan) is a fundamentally different process from purchasing a secondhand apartment. The payment structure, financing options, risks, and timeline are all distinct. This guide compares both paths so you can make an informed choice.
How Payment Structures Differ
New Construction (Kablan)
Payments are staged over the construction period, typically spread across 1-3 years. A common schedule looks like:
- At signing: 10-15% of the purchase price
- At foundation stage: 15-20%
- At skeleton/framing: 15-20%
- At interior finishing: 15-20%
- At key delivery: Remaining balance
Resale (Secondhand)
The standard resale payment schedule is simpler and faster, typically completed within 30-90 days:
- At signing: 10-15% deposit (your own funds)
- Within 30-60 days: An additional payment (from savings or mortgage)
- At closing / key delivery: Final payment (mortgage disbursement)
The entire transaction from contract to keys usually takes 30-90 days, though longer timelines can be negotiated.
Construction Input Index (Madad Tsumin)
One of the biggest surprises for first-time buyers from a developer is the construction input index (madad tsumin). When you buy off-plan, the contract price is typically linked to this government index, which tracks the cost of building materials and labor. As the index rises between your contract date and each payment date, your payments increase proportionally.
This Can Be Significant
In periods of high inflation or construction cost increases, the madad tsumin can add 5-10% or more to your total purchase price. For a 2,500,000 NIS apartment, that could mean an additional 125,000-250,000 NIS that you did not budget for. Always account for potential index increases when budgeting for new construction.
Some developers offer a "closed price" (mechir sagur) option where the price is not linked to the index. These are less common and the base price is usually higher to compensate, but they eliminate the uncertainty. Resale properties have no index linkage, the price you agree on is the price you pay.
Builder's Loan (Halva'at Kablan)
A halva'at kablan (builder's loan or developer's loan) is a special financing arrangement available only for new construction purchases. When you buy from a developer, you do not take out a full mortgage immediately. Instead, you take a builder's loan that covers the staged payments as they come due during construction.
How It Works
- The bank releases funds in stages matching the developer's payment schedule
- During construction, you typically pay only interest on the disbursed amounts, not full mortgage payments
- Once the building is completed and you receive the keys, the builder's loan converts into a regular mortgage
- This means lower monthly costs during the construction period, useful if you are renting while waiting for your new home
The interest rate on a builder's loan is typically Prime-based. When the loan converts to a full mortgage at completion, you structure your regular mortgage tracks at that point based on prevailing market rates.
Bank Guarantees (Arevut Bankit)
When you buy from a developer, Israeli law requires the developer to provide you with a bank guarantee (arevut bankit) or equivalent protection for every payment you make during construction. This is your safety net: if the developer goes bankrupt or fails to deliver the apartment, the bank guarantee ensures you get your money back.
Critical Rule
Never make a payment to a developer without receiving a bank guarantee in return. Your lawyer should verify that each guarantee is in place before you transfer funds. This is non-negotiable and required by the Sale (Apartments) (Assurance of Investments of Acquirers of Apartments) Law.
Resale purchases do not involve bank guarantees because you are buying an existing property. Your deposit is held in the seller's lawyer's trust account and the transaction closes quickly.
Construction Delays
Delays are common in Israeli new construction. Developers often promise delivery dates that prove optimistic. While some delays are minor (2-3 months), others can stretch to a year or more. Under Israeli law, the developer must compensate you for delays beyond a specified grace period (typically 6-12 months beyond the contractual delivery date), but the compensation may not fully cover your costs, especially if you are renting and paying interest on a builder's loan while waiting.
Resale purchases have a fixed closing date specified in the contract, and delays are rare. If the seller fails to deliver on time, you have clear legal remedies.
Pros & Cons Comparison
New Construction
Pros
- Brand-new apartment, modern design, materials, and building codes
- Developer warranty (1-year general, up to 10 years structural)
- Choose finishes, floor plan options, and sometimes floor level
- Lower payments during construction via builder's loan
- Potentially lower mas rechisha if developer offers price splitting (land vs. building)
- Energy-efficient building standards and modern amenities
Cons
- Construction input index (madad) can significantly increase the final price
- Construction delays are common, uncertain move-in date
- You are buying based on plans and showrooms, not the finished product
- Need to rent while waiting for construction to complete
- Complex payment structure with multiple milestones
- Less room for price negotiation compared to private sellers
Resale (Secondhand)
Pros
- What you see is what you get, visit the actual apartment
- Faster process, typically 30-90 days from contract to keys
- No construction index risk, fixed price
- Established neighborhoods with known character and services
- More room for price negotiation with individual sellers
- No construction delays, move in quickly
Cons
- Older building, potential maintenance issues, outdated plumbing/electrical
- May need renovation, additional time and cost
- No developer warranty on existing condition
- Older buildings may lack elevators, parking, safe rooms (mamad), or accessibility
- Full mortgage payments start immediately
- Previous owner's choices in finishes and layout may not match your taste
How the Mortgage Differs
| Factor | New Construction | Resale |
|---|---|---|
| Financing type | Builder's loan → mortgage | Standard mortgage |
| Payments during construction | Interest only on drawn amounts | Full payments from day one |
| Track selection timing | At completion/conversion | At mortgage signing |
| Appraisal | Based on plans + comparable sales | Based on physical inspection |
| Disbursement | Staged (per milestones) | Lump sum at closing |
| Price certainty | Subject to construction index | Fixed at contract signing |
Which Is Right for You?
New construction may be better if...
You are not in a rush to move, you want a modern apartment with contemporary finishes, you value the developer warranty, and you can handle the financial uncertainty of the construction input index. It is also a good choice if you are currently renting comfortably and can wait 1-3 years for delivery.
Resale may be better if...
You need to move quickly, you want to know exactly what you are buying, you prefer an established neighborhood, or you want price certainty. It is also preferable if you are risk- averse about construction delays and index-linked price increases.
Need Help Deciding, or Financing, Your Purchase?
Whether you are buying from a developer or a private seller, I will help you structure the right financing, navigate the builder's loan process for new construction, or secure the best mortgage terms for a resale purchase. The approach is different for each, and I have experience with both.