Afi Capital: What it really costs to preserve sales velocity
This follow-up isolates the sales-quality issue from the main article: Afi Capital is still selling, but a large part of 2025 relied on flexible contracts, contractor loans, and interest support that delay cash and load more financing cost onto the company. The real question is no longer how many units it can move, but how much of that pace remains economically clean when collections lag progress.
What This Follow-Up Is Isolating
The main article already argued that Afi Capital’s bottleneck has moved from whether it can sell homes to what it is paying to keep selling at this pace. This follow-up does not reopen the full company case. It isolates that one issue: the sales terms, the cost already recorded in the accounts, and the gap between sales velocity and cash velocity.
The reason this matters now is straightforward. The presentation shows 933 units sold in 2025, including 177 units in the fourth quarter. After year-end, the company added another 192 signed sale agreements plus 27 open purchase proposals. In other words, the sales engine is alive. But the same presentation also shows that it still had 1,938 units left to market at the end of 2025, including 1,631 free-market units. Even after the post-balance-sheet signed sales and open proposals, it still had 1,719 units left to move, including 1,541 in the free market. That is why the real debate is not abstract demand. It is the commercial model needed to keep moving that amount of inventory.
For a residential developer, growth achieved through concessions is not the same as clean growth. If the buyer brings only a limited amount of cash early, gets indexation relief, or uses a contractor-loan structure with company-funded interest, volume may hold up, but cash arrives later and the developer absorbs more financing burden. That is the core issue here.
The Sales Terms: Velocity Was Preserved, But Not On Normal Terms
Since 2024 the company has been operating with a different sales toolkit. Instead of a standard linear payment profile over the life of the project, it describes two more prominent models: flexible contracts and contractor loans. In both, the buyer does not need to bring most of the cash early, and the developer absorbs part of the economic cost of that relief.
| Model | What the buyer pays early | What gets pushed out | What the company gives up | Economic consequence |
|---|---|---|---|---|
| Flexible contracts | Usually about 15% to 20% of the purchase price near signing | The balance close to delivery and subject to Form 4 | Exemption from construction-input indexation | Less early cash, more dependence on buyer follow-through until delivery |
| Contractor loans | About 10% to 20% near signing, plus another 10% to 50% via contractor-loan financing | About 30% to 70% roughly four months before delivery and another 10% near delivery | The company bears interest on part of the buyer financing | Sales keep moving, but interest cost and timing burden shift onto the company |
The company itself quantifies the 2025 mix. In projects where financing benefits were granted, about 59% of those benefits were flexible contracts, totaling roughly NIS 422 million. About 41% were contractor loans, totaling roughly NIS 298 million. In 2024 the balance looked different: about 29% of the benefits were flexible contracts, totaling roughly NIS 334 million, while about 71% were contractor loans, totaling roughly NIS 820 million, including contractor loans taken in 2025 for contracts signed in 2024.
That does not mean the pressure disappeared. It changed form. In 2024 the burden sat more directly in contractor-loan support. In 2025 a larger part of it moved into flexible contracts, which means less direct interest subsidy on part of the book, but deeper deferral of customer cash later into the project life. That may look cleaner at the sales-count level, but it does not restore clean cash conversion.
One more detail matters. The company says that in contractor-loan structures the bank performs full underwriting and that the company receives, on average, about 37% of the purchase price around signing. That helps explain why the model works commercially. It does not solve the timing problem. Even with underwriting, a meaningful portion of the cash still comes later, while the company is already paying interest and pushing the project forward.
Where The Cost Already Shows Up In The Accounts
The cost of this sales model is not theoretical. In 2025 the company paid banks about NIS 29 million in cash interest related to contractor-loan promotions in marketed projects. That is not a valuation assumption, not a note-only risk, and not a future burden. It is cash that already left the company so the transaction could close.
There is also an accounting layer. In transactions where the buyer’s payment pace lagged project progress, the company recorded a significant financing component of about NIS 2.156 million. That amount does not stay inside apartment revenue. It reduces the transaction price and is recognized as finance income. So even when the revenue line looks strong, part of the economics has already been shifted out of the sale price and into the financing line.
The sharper footnote is the one about the unsold pipeline. The company explains that in projects with material financing benefits, the significant financing component is deducted in the project tables only for units already sold. For units not yet sold, projected revenue and profitability still rely on business plans or advanced-execution reports without deducting a significant financing component, because the company says it cannot yet estimate which benefits will be required later.
That matters for how the backlog should be read. It does not mean the forecasts are wrong. It does mean the unsold units are not currently shown on a basis that necessarily captures the full future financing cost if the company keeps needing flexible contracts, indexation waivers, or interest support to move them.
When Sales Move Faster Than Cash
The clearest proof that sales velocity relied on deferred collections sits in the note on contracts with customers. In 2025 the company recognized about NIS 711.0 million of revenue, but collected only about NIS 588.2 million of customer advances. As a result, the net position moved from a liability of about NIS 19.1 million at the end of 2024 to an asset of about NIS 103.7 million at the end of 2025.
In plain terms, the company ended the year after recognizing more revenue than it had collected in customer advances. For a residential developer, that is not automatically a red flag. But it is a very clear sign that accounting activity ran ahead of cash collection.
The cash-flow statement reinforces exactly the same point. Before the real-estate-specific layers of inventory, land, and customer-contract balances, the company generated about NIS 117.6 million from operating activity in 2025. That is the number one could cite if the goal were to tell a comfortable story. But it is not the full cash picture of a residential developer. After a roughly NIS 57.9 million increase in land inventory, buildings under construction, and apartments for sale, a roughly NIS 27.3 million decline in liabilities related to land acquisition for construction, and a roughly NIS 122.8 million negative swing in contract assets and contract liabilities, operating cash flow ended at negative roughly NIS 90.5 million.
That is the distinction between volume growth and quality growth. The company really did sell. It really did move projects forward. But cash flow shows that part of that activity was funded through the balance sheet while the customer cash lagged behind.
And when that happens, the next question is who closed the gap. The answer sits on the financing-cash-flow page: financing activity generated about NIS 297.9 million net in 2025, helped by roughly NIS 374.5 million of bank and financial-institution borrowings and roughly NIS 341.4 million of net bond issuance. That is why cash and cash equivalents rose to NIS 204.0 million at year-end. This does not mean the company is weak. It does mean sales velocity was preserved with clear support from the debt layer.
What This Means For 2026
The presentation shows a company entering 2026 with a very large commercial workload: many projects already under execution and marketing, plus a meaningful amount of inventory that still needs to be sold, especially in the free market. At the same time, it is already reporting post-balance-sheet sales. So the risk here is not a sudden collapse in sales. The risk is that the company keeps selling while continuing to do so under a model in which the accounting looks cleaner than the cash.
That is also the right test for the next few quarters. It will not be enough to watch how many units were sold. Three more basic questions matter:
| What needs to be tested | What would signal a real improvement | What would signal the cost is still too high |
|---|---|---|
| Sales terms | Lower dependence on flexible contracts and subsidized contractor-loan structures | Continued reliance on indexation waivers and deferred collections |
| Contracts with customers | The net balance moving back toward liability, or at least the asset shrinking | The net asset continuing to grow, meaning recognition still outpaces collections |
| Cash flow | Better operating cash flow without another heavy funding overlay | Another year in which debt mainly finances the timing gap |
If the company converts sales momentum into deliveries, advances, and better cash conversion, 2025 will look like a bridge year. If not, the same thesis will simply become sharper: Afi Capital knows how to preserve volume, but is paying too much to preserve it.
Conclusion
The follow-up thesis is simple: Afi Capital is not manufacturing demand out of nowhere, but it is subsidizing part of the way that demand is able to close. In 2025 that ran through roughly NIS 422 million of flexible contracts, roughly NIS 298 million of contractor-loan activity, about NIS 29 million of actual cash interest paid to banks, and a shift from a net contract liability to a net contract asset.
That is why the most important number going forward is not another sales target. It is how much of those sales start coming with more customer advances, less subsidy, and less need to bridge the gap with more debt. That is where it will become clear whether Afi Capital merely preserved sales velocity, or also preserved the quality of growth.
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