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Down payment on an apartment

שו”תCategory: HalachaDown payment on an apartment
asked 9 years ago

Hello Rabbi,
Is it permissible to pay a down payment on an apartment from a contractor when the apartment is not yet built (prohibition of interest), and can it be said that “the price has gone up” in the context of apartments?


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0 Answers
מיכי Staff answered 9 years ago
I didn’t understand the question. Why would there be a prohibition on interest on an advance payment? Are you paying more than the price? It turns out that the rate is the permit that was said regarding a loan for a penny (when you borrow an egg for an egg), and then there is a concern that it will increase in price and is permitted if the price is fixed in the markets. In your case, it is not a loan at all. In parentheses, I will add that when it comes to apartments, I doubt whether there is such a thing as a price. Each apartment is different, and the ups and downs of one apartment are not related to another (but rather correlated). This is not a commodity with a clear price. Therefore, here I think there is no need to be strict about it even when you borrow a penny for a penny (apartment for an apartment).

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אורן replied 9 years ago

I forgot to mention that the contractor offers a discount for early payment. Let's say if you pay for the apartment now, you will receive it for a million shekels, and if you pay when the apartment is ready, you will pay 1.1 million. The contractor uses the money you pay him now to finance the construction costs. This payment method is very common in the real estate market. The question is whether there is a prohibition on interest here or whether it can be said that ”the rate has come out” as in any ruling on goods.

מיכי Staff replied 9 years ago

Again, I don't see that there is a loan here, so “the rate went up” doesn't seem relevant to me.
A discount on early payment is allowed. Charging for late payment is interest.

אורן replied 9 years ago

From what I have understood so far, a discount on advance payment is also early interest, which is also prohibited.
The relevant sign in the answer:
Shulchan Aruch Yoreh Deah Laws of Interest, Section 7, Section 10, Section 7
If one buys something worth 100,000 baht in order to advance the interest, if there are 100,000 baht in the seller's possession but it is not in his possession until his son comes or until he finds the key, it is permitted. 17 And if it is not in his possession, (8) it is prohibited even if he has some of the same thing 180,000 baht in the hands of others. Haga: 19] And the seller is trustworthy to say that he has it (Hagagot Mordechai Reish Izahu Neshak). 19] And all this is not Shari except in vain, but if it is interpreted to mean: If you give me now I will give you 100,000 baht, and if after a while 100,000 baht, it is prohibited. (Tor in the name of Rabbi Isaiah). 20] And all this in the matter (9) whose value is known, but if 11) its value is not known, even 17] it does not have it, Shari. (2) in the name of Tosafot and Ras, provided that it is in plain language, but not in the commentary.

מיכי Staff replied 9 years ago

I think that when there is no Mir Shuk and no Sheik, the gate should not be compared to each other. And the fact is that everyone tends to make light of this.
See for example here (in response to Taz Sivan) who wrote to distinguish between a situation where the price is future and now it is a discount and a situation where the price is current and then 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 on credit when there is a cash discount, but see the final sentence that says taking the cash discount is permitted (he ignores the section you cited, and perhaps this is because he discusses when the goods are in his hands, which is then permissible, as if he were buying them now).

דירה על הנייר replied 9 years ago

On the 22nd of Kislev, 7th of July

Ramada, – Shalom Rav,

The possibility of a ‘cash discount’ belongs when the object being sold is in the possession of the seller, and then there is a place where it is said that the object is sold to him at a discount.

However, in an &#8217apartment on paper’ there is no object sold, the contractor actually receives a loan of 1 million NIS to finance the construction and returns an apartment worth 1.1 million NIS, and apparently there is interest in this.

Best regards, S.C. Halevi Newcomb

מיכי Staff replied 9 years ago

I understood this, but my argument was that an apartment has no price. Therefore, it is inappropriate to talk about whether or not the price has gone up, and it is difficult to talk about price increases and interest rates in relation to it. Each apartment is an independent entity. Real estate valuations are purely speculative. Therefore, when you buy an apartment now on paper, you did not buy the apartment because it does not exist, but it is also difficult to say that there is a fear of price increases because the concept of price increases in relation to an apartment is not very defined.

אין מכירה replied 9 years ago

On the 22nd of Kislev, 7th of July

Ramada, – Hello,

I am not discussing the fear of price increases, but rather the fact that the object does not exist and there is no sale at all, but rather a loan.

Best regards, S.C. Levinger

ואת"ל replied 9 years ago

And if you conclude that the future price of the apartment will be determined as an amount paid in advance, then unlike second-hand apartments, apartments in a contractor's project have a fixed price list, and it is probably higher than what was paid in advance. And so on.

מיכי Staff replied 9 years ago

Without fear of price increases, there is no prohibition. After all, the prohibition is to take out a loan and if there is a price increase, then there will be interest (Drabnan).

מיכי Staff replied 9 years ago

I was thinking of two more points:
1. There is no fraud in the land (and the fraud rate is only over half, and that probably won't be the case here). Hence, the land/apartment has no issue with the gate because it has no price. Every land or apartment is something unique that has no equal on the market, and therefore there is no point in discussing whether it has its equal or not.
2. The advance payment is used to buy the construction materials, and perhaps there is a place to define this as the materials fee and not as a loan. Although according to this, the materials are yours from the time they are purchased and not just when you receive the key. It may be worth anchoring this in a contract and then it is safer, but perhaps even without it you can say so. And especially that the goal is not profit from the gift of money but financing the cost of the materials.

אורן replied 9 years ago

I saw a similar question from Rabbi Ishon from the Keter Institute, who wrote:

“If at the time of payment the buyer receives rights to the land (warning note, etc.), then there is room to say that the payment is for these rights, which he receives immediately, and therefore there is no advance payment here. (Assuming that the entire price of the house is not paid in advance.)”

מיכי Staff replied 9 years ago

Indeed. A nice consideration.

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