Buying an Apartment from a Contractor — Risks, Rights, and Protections You Must Know

The Market Reality: Why Buying from a Contractor Is Riskier in 2026

Anyone visiting the new developments in Kiryat Ono — Omami on Yitzhak Navon Street, Shviro in the northern part of the city, or Alma on Levi Eshkol Street — sees attractive advertisements and impressive sales offices. But behind the showrooms lie numbers every buyer must understand.

The central figure: since early 2023, 1,438 new apartment deals have been cancelled across Israel. Of these, 744 are from deals signed in 2023, 562 from 2024, and 132 from 2025. The cancellation rate jumped from 0.5% in 2021 to 3.6% in 2023 deals — a 620% increase. The primary cause: two-thirds of those who cancelled reported financial difficulties, mainly the inability to secure mortgage approval.

In January 2026, only 1,668 new apartments sold on the open market in Israel — one of the lowest figures recorded. Meanwhile, approximately 86,000 new apartments sit unsold on the shelf. These CBS figures paint a clear picture: the new construction market is under significant pressure.

In the Bik'at Ono region, this is felt on the ground. Projects like Ono Park (approximately 1,500 units) and Alma (760 units) are offering financing promotions to attract buyers. This is precisely the time to think with a cool head and not be tempted — a financing deal that sounds too good to be true may turn into a problem costing hundreds of thousands of shekels.

Buying from a Contractor — How the Process Actually Works

Buying from a contractor means purchasing an apartment that has not yet been built, or is in advanced construction stages. Unlike a second-hand purchase, you sign a contract with a development company, pay according to an agreed schedule, and receive the keys only at the end of construction — sometimes 3-4 years after signing.

The process is primarily regulated under the Sale of Apartments Law (1973) and the Investment Protection Law for apartment buyers. Amendment 9, which took effect in July 2022, brought significant improvements for buyers, including limitations on indexation to the construction input index and shorter grace periods for delay compensation.

In Kiryat Ono, several major projects are currently active:

Important to understand: the price shown in the advertisement is not the final price. You must add lawyer fees (yours and the contractor's), purchase tax, specification upgrades, indexation, and more. The gap between the advertised price and the actual price can reach 7%-10%.

Major Risks — What Can Go Wrong When Buying from a Contractor

The first and most painful risk is deal cancellation. Most contractor agreements stipulate a penalty of approximately 10% of the apartment value for a fundamental breach. On a ₪3 million apartment, cancellation could cost you ₪300,000. A concerning statistic: 66% of cancellations in recent years occurred because buyers could not obtain mortgage approval. Therefore, obtaining preliminary approval from multiple banks before signing is essential.

The second risk is delivery delays. Many contractors miss their deadlines. Under Amendment 9 to the Sales Law, after 30 days of delay you are entitled to compensation equivalent to the rent on a comparable apartment. After 5 months, compensation rises to 125% of rent, and after 11 months to 150%. In Kiryat Ono, rent for a 4-room apartment runs approximately ₪7,000 per month, meaning a year's delay compensation could total ₪90,000 or more.

The third risk involves construction defects. The Sales Law establishes different warranty periods by defect type: plumbing — 2 years, moisture infiltration — 3 years, cracks — 5 years, external cladding peeling — 7 years. During the warranty period, the contractor must repair defects unless they prove the damage was caused by the homeowner. After the warranty period, there are 3 additional years of responsibility where the burden of proof shifts to the buyer.

The fourth risk, less discussed, is contractor viability. What happens if the development company faces financial distress? This is where the statutory bank guarantee becomes critical. Verify that the project operates under full bank supervision, meaning every payment you make is protected.

20/80 and 10/90 Deals — Opportunity or Trap

Financing promotions like 20/80 allow you to pay just 20% at signing and 80% at key handover. This sounds attractive, especially for young couples without large equity reserves. But in practice, these promotions are the primary driver of the cancellation wave.

The problem: when the time comes to pay the 80%, you need a mortgage. But interest rates, family income, or market conditions may have changed since signing. The result — buyers who cannot secure a mortgage and lose the 10% they already paid as a cancellation penalty.

The Bank of Israel identified the risk and imposed restrictions in April 2025, valid through the end of 2026. The new rules limit 20/80 deals to 25% of units in any project, and subsidized balloon loans are capped at 10% of total monthly mortgages per bank. The goal: prevent buyers from taking on commitments they cannot fulfill.

Our recommendation: if you are considering a 20/80 deal, obtain preliminary mortgage approval from at least three banks before signing. Ensure the mortgage you plan to take fits your income even in a rising interest rate scenario. Do not rely on assumptions — plan for the worst case.

Your Legal Rights — Bank Guarantees and Amendment 9

Israeli law provides new apartment buyers with several significant protections. Knowing these ensures the contractor does not overstep.

The statutory bank guarantee is the most fundamental protection. Under law, if the contractor charges you more than 7% of the apartment price, they must provide a bank guarantee, insurance policy, or other security protecting your money. The guarantee ensures that if the contractor fails to complete construction, you get your money back. Important: verify the project has full bank supervision — this means the project account is isolated from the developer's other activities.

Amendment 9 to the Sales Law (July 2022) brought important improvements. Indexation to the construction input index was limited: only 40% of the apartment price can be indexed, and 20% cannot be indexed at all. The contractor's lawyer fee was capped at ₪5,915. The grace period for delay compensation was shortened from 60 to 30 days. And contractors were barred from selling apartments in projects without a building permit.

Another important right: a professional home inspection before key handover. It is highly recommended to hire an independent inspection engineer (cost: ₪1,000-1,200 + VAT) who will examine the apartment before you sign the handover protocol. Any defect found at this stage — the contractor is obligated to fix. This is not an unnecessary expense; it is the most worthwhile investment you will make.

Associated Costs — What Buying from a Contractor Really Costs

Beyond the apartment price itself, there is a series of costs to plan for. Here is the full breakdown for a typical 4-room apartment in Kiryat Ono (approximately ₪3 million):

The conclusion: on a ₪3 million apartment, plan for an additional ₪60,000 to ₪180,000 in associated costs. That is 2%-6% above the apartment price. Anyone who does not plan for this in advance may find themselves in trouble at precisely the moment they most need the money.