I forgot to mention that the contractor is offering a discount for early payment. Suppose that if you pay now for the apartment you get it for 1 million shekels, and if you pay when the apartment is ready you pay 1.1 million. The contractor uses the money you pay him now in order to finance the construction costs. This payment method is very common in the real-estate market. The question is whether there is a prohibition of interest here, or whether one can say there is “an established market price” as with other rulings about merchandise.

Again, I don’t see that there is any loan here, so “an established market price” does not seem relevant to me.
A discount for early payment is permitted. Charging for delay is interest.

From what I’ve understood until now, a discount for early payment is also advance interest, which is likewise prohibited.
The relevant section in the Shulchan Arukh:
Shulchan Arukh, Yoreh De’ah, laws of interest, section 173:7
If one buys something worth twelve for ten because he pays the money earlier, then if the seller has them in his possession, except that they are not available to him until his son comes or until he finds the key, it is permitted. But if it is not in his possession, it is prohibited, even if he has others indebted to him for that type of item on credit. Gloss: And the seller is believed if he says that he has it. And all this is only permitted when it is said without specification; but if he explicitly says: “If you give me now I will give it to you for ten, and if later for twelve,” it is prohibited. And all this applies to something whose valuation is known, but if its valuation is not known, then even if he does not have it, it is permitted — provided it is stated without specification, but not if explicit.

It seems to me that when there is no market price and “an established market price” does not apply, one should not compare this to that. And the fact is that everyone is lenient about this in practice.
See for example here (in the responsum from the 16th of Sivan), where he wrote to distinguish between a situation where the price is the future price and now it is a discount, and a situation where the price is the current price and afterward it is interest:
https://www.keter.org.il/%D7%A9%D7%90%D7%9C%D7%95%D7%AA_%D7%95%D7%AA%D7%A9%D7%95%D7%91%D7%95%D7%AA/%D7%A8%D7%99%D7%91%D7%99%D7%AA
He discusses paying by credit when there is a cash discount, but see the concluding sentence that according to all opinions taking the cash discount is permitted. He ignores the section you cited, and perhaps that is because he is discussing a case where the merchandise is available in his possession, in which case it is permitted since it is as though he is buying it now.

With God’s help, 22 Kislev 5777

To Rabbi Michael Abraham — greetings,

The possibility of a “cash discount” applies when the item being sold already exists in the seller’s possession, and then one can say that he is selling him the item at a discount.

However, with an “apartment on paper,” there is no item at all being sold. The contractor is essentially receiving a loan of 1 million shekels to finance the construction and repaying with an apartment worth 1.1 million shekels, and ostensibly this involves interest.

Best regards, S. Z. Halevi Newcomb

I understood that, but my claim is that an apartment has no price. Therefore it makes no sense to talk about whether there is or is not an established market price, and it is also difficult to talk about price increases and interest in relation to it. Every apartment is an independent creature. Real-estate appraisal is mere estimation. Therefore when you now buy an apartment on paper, true, you have not bought the apartment because it does not exist, but it is also hard to say there is concern about price appreciation, because the concept of appreciation in relation to an apartment is not very well defined.

With God’s help, 22 Kislev 5777

To Rabbi Michael Abraham — greetings,

I am not discussing this from the standpoint of concern about appreciation, but from the side that the item does not exist and there is no sale at all, only a loan.

Best regards, S. Z. Levinger

And if you should say that the future price of the apartment will be set as the amount paid in advance, still, unlike second-hand apartments, apartments in a contractor’s project do have a fixed price list, and presumably it is higher than what was paid in advance. This requires further study.

Without concern about appreciation there is no prohibition at all. After all, the prohibition is to take a loan and then have appreciation, and then there would be interest here (rabbinic).

As I was writing I thought of two more points:
1. There is no overcharging law regarding land, and even according to Rabbenu Tam the overcharging is only beyond half, and that probably would not be the case here. From this it follows that for land/apartments there is no issue of “an established market price,” because they have no price. Every parcel of land or apartment is something unique, with nothing exactly like it on the market, and therefore one also cannot discuss whether he has something like it or not.
2. The advance payment is used to purchase the building materials, and perhaps there is room to define it as payment for the materials and not as a loan. Admittedly, according to this, the materials are already yours from the moment they are bought, and not only when you receive the key. It may be worthwhile to anchor this in the contract, and then it would be more secure, but perhaps even without that one can say so. Especially since the purpose is not profit from waiting for the money, but financing the cost of the materials.

I saw that in a similar question to Rabbi Eitan from the Keter Institute he wrote:

“If at the time of payment the buyer receives rights in the land (a cautionary note and the like), then there is room to say that the payment is for those rights which he receives immediately, and if so this is not an advance payment of money. (Assuming he is not paying the full price of the house in advance).”

Indeed. A nice consideration.