Is Av-Gad Selling or Financing Demand? What Sales Terms Are Doing to Margin and Cash Conversion
Av-Gad kept sales moving in 2025 with 20/80 terms, non-indexed sales, contractor loans, and a year-end trade-in program. The real question is not whether apartments are selling, but how quickly cash arrives and how much financing and indexation risk the company absorbs on the way.
Where The Quality Problem Starts
The main article argued that Av-Gad’s real bottleneck is not the size of the backlog but the funding of that backlog. This follow-up isolates the sales side of that same issue, because in residential development it is not enough to ask whether apartments are selling. The harder question is on what terms they sell, when the cash comes in, and who funds the gap until then.
Av-Gad describes an unusually active sales toolkit: flexible payment terms such as 20/80, exemptions or caps on construction-input indexation, contractor loans where the company bears part or all of the interest cost, and from December 2025 onward, a trade-in track. At the same time, it says that most sales over the past year were non-indexed even though the housing construction-input index rose 2.5% over the last 12 months. That already frames the whole issue: the company kept transactions moving, but it also took more of the economic burden onto itself.
There is nothing inherently wrong with using sales incentives in a slower housing market. With transactions down and developers holding higher unsold inventory, these tools can be rational. The problem starts when they become a structural way to hold volume together. At that point, reported revenue can look fine while cash collection is delayed, financing cost shifts toward the developer, and margin becomes more exposed to costs the buyer no longer fully absorbs.
The Price List No Longer Tells The Whole Story
Av-Gad explicitly says it measures the value of the apartment after benefits and financing incentives against its official price lists. That wording matters. It means the sticker price on its own is no longer enough to understand deal economics.
| Mechanism | What it solves on the demand side | What it pushes back onto the company |
|---|---|---|
| 20/80 and other flexible payment terms | Lowers the upfront cash burden for the buyer | Delays collection relative to construction progress |
| Waived or capped construction-input indexation | Reduces buyer uncertainty | Leaves more input-cost risk with the developer |
| Contractor loans | Makes the transaction easier to finance | The company bears part or all of the interest cost |
| Trade-in | Removes the friction of selling the old apartment first | The company pays brokerage, may grant an extra discount, extend contractor financing, or even buy the old apartment itself |
The key point is that every one of these tools can preserve sales volume, but none of them is free. A 20/80 structure does not create demand out of nowhere, it just shifts more of the cash collection to the end. Waived or capped indexation does not increase real pricing power, it limits the company’s ability to pass on higher costs. Contractor financing keeps the deal alive, but moves some financing expense from the customer to the company. And the trade-in program adds a new layer altogether: Av-Gad is not just selling a new apartment, it is partially taking on the execution risk of the buyer’s old one.
There is also a limit to what can be proven from the filing. The report does not break out how many units were sold under each specific track, so it is impossible to assign an exact shekel amount of margin erosion or cash drag to one tool. What can be said with confidence is directional: Av-Gad did not merely adjust pricing, it broadened the balance-sheet support wrapped around the sale.
The Balance Sheet Already Shows Who Is Funding The Pace
To understand sales quality, the right frame here is all-in cash conversion, not theoretical profitability. The basic test is whether accounting recognition is moving together with customer cash. In 2025, it did not.
Contract assets jumped from NIS 44.7 million to NIS 104.7 million. Customer advances and contract liabilities rose only from NIS 20.4 million to NIS 21.4 million. In other words, the gap between revenue that has already moved onto the balance sheet and cash received upfront from customers widened from roughly NIS 24.3 million to NIS 83.3 million.
That is the core of the issue. The company itself explains that the increase in contract assets came mainly from wider timing gaps between tenant payments and the progress of construction work. So even without a precise breakdown of how many deals were 20/80 and how many used other structures, the balance-sheet result is already visible: execution and accounting recognition ran materially ahead of customer cash.
The same pattern appears in inventory. Buildings under construction for sale and land rose from NIS 194.1 million to NIS 437.4 million, an increase of NIS 243.3 million. That is far larger than the NIS 22.4 million year-on-year increase in revenue. Put differently, Av-Gad committed a lot more capital into projects, but did not yet show customer collections keeping up at the same speed.
Cash flow closes the loop. Operating cash flow was negative NIS 197.0 million in 2025. Inside the reconciliation, customers and contract assets consumed NIS 58.8 million, while buildings under construction, future projects, and land inventory absorbed another NIS 105.1 million. Against that, the increase in payables, accrued balances, and customer advances added only NIS 6.3 million. This is not a presentation issue. It is a cash-conversion issue.
Margin Also Says The Concessions Are Not Free
If the sales terms were only a cash-timing issue, the picture would still be uncomfortable but cleaner. The 2025 income statement shows pressure on profitability as well. Revenue rose to NIS 188.4 million from NIS 166.0 million, but gross profit fell to NIS 13.1 million from NIS 22.4 million. Gross margin compressed from 13.5% to 6.9%.
The quarterly pattern shows only a partial recovery. Gross margin was slightly negative in the first quarter, then improved to about 3.1% in Q2, 8.4% in Q3, and 13.3% in Q4. That late-year improvement matters, but it does not erase the fact that full-year profitability was still materially weaker than in 2024.
The filing does not allow a clean claim that every point of margin compression came from sales terms, and it would be wrong to force that conclusion. But the connection is too direct to ignore. The company says most sales over the last year were non-indexed, and in the same discussion says changes in the construction-input index may have a material effect on results. If input costs rise and the developer does not fully pass them through, margin gets squeezed. That matters even more when the company is also subsidizing part of the financing cost in contractor-loan structures.
So the important number here is not just how many apartments were sold. It is how much economic value is left in each apartment after every layer of commercial support. In a company whose balance sheet already shows delayed collection, that is no longer just a customer-convenience issue. It is an earnings-quality issue.
The Trade-In Program Is Not A Gimmick
The trade-in program launched in December 2025 is especially revealing because it shows how far Av-Gad is willing to go to keep sales moving. On the surface, the logic is straightforward: it targets upgrade buyers who are reluctant to commit to a new apartment before selling the old one. But almost every clause in the mechanism shows the company taking on another layer of timing, pricing, or financing risk.
The old apartment cannot exceed 70% of the price of the new one. The minimum sale price is set after a 6% haircut to the appraised value. The company pays the brokerage cost. If a buyer is found below the minimum price, Av-Gad makes up the shortfall through a discount on the remaining consideration of the new apartment. And if no buyer is found at all, the company may, with the customer’s consent, delay delivery of the new apartment, extend contractor financing, or buy the old apartment itself at the minimum price.
That is much more than a normal sales promotion. A structure like this shifts part of the timing risk, part of the pricing risk, and part of the bridge-financing need onto the company. It is also important to keep the timing straight: because the program started only in December 2025, its main significance is less about the 2025 numbers themselves and more about what 2026 cash conversion may look like. That is exactly why it matters. It signals that the company sees a real demand bottleneck and is prepared to solve it with its own balance sheet.
The Bottom Line Of The Follow-Up
Av-Gad is not only selling apartments. In 2025, it also financed part of the path to the sale. That does not make the sales any less real, but it does change their quality. When the company relies on 20/80 terms, non-indexed sales, contractor financing, and by year-end even trade-in support, it is shifting part of the economic price of the transaction from the customer back onto itself, or at least pushing the cash realization further out.
The balance sheet and cash flow already show the consequence. Contract assets increased by NIS 60.0 million, the net gap versus customer advances expanded to roughly NIS 83.3 million, inventory rose by NIS 243.3 million, and operating cash flow fell to negative NIS 197.0 million. At the same time, full-year gross margin compressed despite higher revenue. This is not a classic case of self-funding growth.
The key 2026 test is straightforward. Will higher sales start to come with higher advances, faster collection, and stable gross margin, or will Av-Gad keep holding volume together through terms that push both cash and part of the economic cost into the future? If the answer improves, the current sales toolkit can be read as a temporary bridge. If it does not, it will be hard to avoid the conclusion that part of today’s demand is simply being financed by the company.
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