What is the Construction Cost Index?

The Construction Cost Index (also known as the Construction Input Index) reflects estimated changes in building costs, with the two main inputs being the cost of materials and the cost of labor.

The cost of dozens of construction-related inputs is collected directly from a sample of wholesalers and manufacturers of raw materials. Each item is weighted according to its typical share in overall building expenses. Based on this data, a representative “basket price” is calculated, and the index reflects how that price changes from month to month.

The Central Bureau of Statistics (CBS) publishes the updated index on the 15th of each month, reflecting data from the previous month.

What’s the significance of the Index?

The Construction Cost Index is essential for contractors and developers, but it’s just as relevant for buyers of new homes. That’s because, during the construction process, sale prices are typically linked to this index. For many years, the index saw minimal movement and was considered relatively insignificant. However, in recent years, global events have triggered sharp increases.

The COVID-19 pandemic disrupted supply chains and restricted the movement of foreign labor, while the war in Ukraine drove up the cost of key materials—especially iron. These factors caused construction costs in Israel to surge, leading to a steep rise in the index. As a result, many homebuyers ended up paying 8% to 10% more than their original purchase price. Since October 7, labor shortages have further driven up costs. With tens of thousands of Palestinian construction workers unable to enter the country, developers are facing rising labor expenses, which may once again push the index upward—affecting buyers in real time.

How does linkage impact the cost of a new apartment?

If you purchase a new apartment “off-plan” (before or during construction), any remaining payments—after the initial down payment—are usually linked to the Construction Cost Index. This protects developers from rising material and labor costs and shifts the financial risk to you as the buyer.

In some cases, there may be no linkage at all, or the linkage may be capped. These are critical terms that should be carefully reviewed and negotiated before signing the contract.

When linkage applies, the amounts due are adjusted based on how much the Construction Cost Index has changed between the base date (typically the date of signing, unless stated otherwise in the contract) and the actual payment date.

In August 2022, the Knesset passed an amendment to the Sales Law designed to protect homebuyers from excessive exposure to the Construction Cost Index. The key provisions are:

• Linkage is limited to 40% of the total apartment price stated in the contract.
• The down payment paid upon signing cannot be linked to the index.
• No linkage can apply after the delivery date stated in the contract—even if the apartment is delivered late.

For example: If the purchase price is NIS 4,000,000 and you pay a 20% down payment (NIS 800,000), the remaining balance is NIS 3,200,000. However, only 40% of the total purchase price—NIS 1,600,000—is allowed to be linked to the index. If the index increases by 3% during the construction period, you would need to pay an additional NIS 48,000 due to index linkage. Your final purchase price would then be NIS 4,048,000.

When do I have to pay it?

The extra amount due to index changes is paid whenever you make a scheduled payment. This could be in stages (for example, when construction milestones are reached), or as one lump sum near the end. The adjustment is calculated based on the difference between the index on the base date and the index on your payment date. If you delay payment, the index has more time to rise—and so does the amount you’ll owe.

For example: If the index on the base date is 130 and the index on the payment date rises to 136, that represents a percentage increase of 4.6%. If your outstanding payment to the contractor at that point is NIS 1,200,000, then due to the index linkage, you would owe an additional NIS 55,200. In total, instead of paying NIS 1,200,000, you would need to pay NIS 1,255,200.

Important Notes:

• Mortgage banks do not cover index-linked increases. Any additional amount resulting from changes in the Construction Cost Index must be paid out-of-pocket and is not included in your mortgage loan.
• The Construction Cost Index works in only one direction — if it falls below the base rate, your payment will not be reduced.
• Whether you can pay early to avoid future index increases depends entirely on the terms of your contract and the developer’s willingness. Many developers, especially before construction begins, may refuse early payments.
• The Construction Cost Index applies only to new apartments purchased from a developer, not to pre-owned homes.