Buying Luxury Apartments in A Group Project: Bavli Project Offer

To reduce the cost of luxury apartments, a scheme of building and financing with a group is an alternative to buying from a traditinal builder. A general contractor organizes a construction “project”. The organizer, finds land, hires an architect and selects a builder. Then they offer apartments for sale in the project. In the early stages, before many units are sold, the project organizer does not spend a great deal of money, until she is sure the project will actually be done. For the buyers, the apartments cost less, up to 20% less than equivalent units in the same area sold by traditional construction companies. In general, it has been claimed that building using contractor projects are slower to be finished and sometimes are not as luxurious as ones built by traditional builders. Usually, construction groups raise money for each unit gradually as the project progresses. This may help buyers pay or raise money for a more expensive unit. In Israel, this scheme is still not a large part of new construction,  yet it is a good laternative to some buyers.

A surprise development recently is the Or Bavly project. A large new neighborhood replacing old small houses. The project's location is in a desirable north Tel Aviv location bordering Ha'yarkon park (a large park running along the northern edge of Tel Aviv.) (see project site) The unique project is trying to extend project construction method into high luxury construction in highly desirable location. The traditional construction commentators are predicting failure of Or Bavli to sell the high priced penthouses, which are going to cost over 150 million shekels ($42 million.) The project organizers simply claim success in previous projects and claim location and luxury will sell the units at the asking price. Essentially what Or Bavli is saying is this: it does not matter how you structure a building project, what counts are results. This approach essentially takes away the luxury image from high gloss construction companies. Essentially image and slick marketing is being replaced by economy. Does this work for the high price luxury market? We will have to wait and see.

Together with the push of construction companies to offer more luxury, government efforts are being made for more affordable construction. The problem of less low cost construction has been plaguing the central Israel region for a long time. Some say, over a decade at least, maybe as long as 15 years. This situation is compounded by the fast inflation in housing prices. In the last decade, new apartment prices have doubled in most locations surrounding Tel Aviv (Petach Tikva, Ramat Gan, Givatay'im). There are many theories why builders are not interested in economy construction. Starting out with available land, since in Israel most of the land is owned by the state and leased in 49 and 99 year contracts. All the way to simple economics of building higher priced properties in order to reap higher returns. The construction business in Israel is notoriously risky. Builders and investors take a risk and in many cases are not rewarded enough for their work. Therefore, choosing to do more lucrative construction is simply smart economics. Even if a project turns out to cost more or take longer to complete, a higher asking price will hedge the success of a project. But all the theories and some government efforts has not changed the low cost construction shortage. The recent elections for the Knesset, has bought out this issue. Most candidates promised to resolve the issue of low cost housing construction, most Israelis are skeptical, and are still waiting to see what will happen. Stay tuned... this could be an interesting development in Israel's search for the perfect balance between democratic free enterprise economy and fair and responsible policy toward the lower classes.