During the 2015 Israel began construction of 2,434 apartments in the projects of the plan 38 – a jump of 36% in housing starts in the framework of urban regeneration compared to last year. How to upgrade these projects, which increase their share of the Israeli construction industry, increase the value of the apartments? We tested
Tama 38 program continues to gain momentum and increase its share in the Israeli construction industry: According to new data obtained by Ynet, during 2015, Israel began construction of 2,434 housing units in projects of Plan No. 38. That compared with 1,853 the previous year – a jump of 36 % in housing starts. However, construction starts of apartments plan 38 projects account for only 5.3% of total housing starts in the past year (in 2014 the rate of housing starts was 4%).
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“Roof agreements should require urban renewal”
The survey conducted Soho Elder Division, which specializes in marketing projects of NMP 38/1 (Strengthening and upgrading) and NMP 38/2 (track demolition and rebuilding), based on data from the Central Bureau of Statistics (CBS). Not tested projects urban renewal. according to statistics, during 2015, the construction of 1,650 housing units in these projects, compared to the 1,588 construction completed housing units in 2014. Therefore, large companies are turning to the field, “he explains. “Urban renewal projects in the coming years will take a larger share of the domestic construction market,” adds Rooney clusters, with clusters company engaged in urban renewal. He said, “As more projects are built, the residents of nearby buildings realize the potential of NOP 38. Previously tenants who refused to understand that stopping a reinforcement of the building in which they live, find themselves in a whole street of buildings higher and newer – and the value of their home will decline rather than exceed “.
Add balcony can raise the value of the apartment by 12% after upgrading the framework of the plan 38, according to the test. The calculation is based on that value sqm terrace is equivalent to 50% of square meters flat major. For example, apartment for its price tag reflects the value of 20 thousand shekels per square meter, and added to her balcony area of 12 square meters, the terrace will raise the price of the apartment is estimated at NIS 120 thousand more. “the addition terrace can shorten the process of selling the apartment, because it is seen as an attractive trait, “adds Bugin. One of the most significant additions NMP 38/1 is the elevator. Adds it to receive high-rise apartment building, who suffered a lower price due to climbing the stairs, the larger value. According to the test, an additional elevator to the apartment on the third floor without an elevator can increase the value by 20%. what about parking? “the value of parking in the central area ranged from 5% to 10% of the apartment value. Parking in town could certainly constitute a real estate property in itself considering the option to rent the daytime rate of up to NIS 1,000 per month, “says Bugin. Even external renovation of the entire building up the value of the asset, at a rate of about 10%. “3-4-storey building with 30-40 years of experience usually need renovation will cost 500-700 thousand shekels, and it’s just for a considerable sum of money of 50 thousand shekels tenant,” says Bugin. “More frugal remodeling can also result in price range of 35-40 thousand shekels tenant. Renovations Rather than cover the whole construction, handyman will only paint jobs and repairs.” “Projects of NOP 38/2 (demolition and rebuilding) can improve the value of assets, but the problem is urban renewal programs quite a few stuck,” says Lior Behar, CEO and owner of Baker group engaged in urban renewal. “Even NMP 38/1 projects, particularly in demand, can improve the property by tens of percent.” David Zehavi, CEO and co-owner URBAN real estate company engaged in NMP 38, agrees. “NMP 38/1 there is less bureaucracy. Tenants staying in apartments and building undergoes a facelift, engineering, architecture and design, “he says.
The importance of the projects in city centers and periphery plan 38, is primarily social. The obvious government action is signiﬁcant and deeply cut tax on enterprises.
Construction Site. (Photo: Jonathan Zindel, Flash 90)
A solution to the housing crisis will not come from one direction. A real change in the housing market must be comprehensive and profound inﬂuence on all fronts faced by homebuyers, contractors and developers. If the Israeli government has not spread and lowers the construction process, not decreased prices. It starts taxation, sometimes taking up about a third to half the value of the property even, and continues during the long wait for building permits in Israel.
The two national plans had to be the spearhead of Israeli real estate: TMA 38 and evacuation / Construction. These two are a real revival of city centers in Israel, both in the center and the periphery. Was possible to get an extra thousand new housing units to beneﬁt the old owners and strengthen the infrastructure of the old and dangerous buildings.
Consideration of the two is not only in increasing the housing supply but, and especially the social processes inherent in them. You can not overstate the importance of the oldest areas in the city centers. Cities are measured primarily through neighborhoods founder and veteran center, which is in the main center of employment or commercial, residential side. These programs also contribute to the possibility of the city to continue to live near their parents, and thus give the generational continuity.
The overall goal of the plan 38 as well as gentriﬁcation is download the urban renewal responsibility from the shoulders of the state and bring it to the developers and owners, by making those economic feasibility for all parties. Governments so far have given the ease with VAT and increasing the building rights, but reality shows that it is not enough. In order to expand the number of projects, particularly in the periphery, there is deepening the tax beneﬁts to Slizmim be worthwhile to carry out urban renewal in cities that are the center of the metropolis.
Tama 38 and gentriﬁcation actually both net sales for the apartment owners, entrepreneur signiﬁcant contrast entitled to relief in taxation, law bypass route gentriﬁcation, and reduce the discretion of the planning authorities regarding additional building rights.
Tama 38 means strengthening the existing structure, building renovation shared infrastructure – sewer, water, electricity, and adding new construction on new construction. The consideration of this case are the owners of apartments derivative ﬁnancial aspect of the transaction and the planning aspect. As for gentriﬁcation, this is a complete demolition of the old building and build a completely new building area is deﬁned, this deal is much more expensive, but also changes the developer grow accordingly – otherwise there is no programming.
Which is better, and to whom?
When considering the pros and cons of the plan 38 and gentriﬁcation index is tested ﬁrst tenants comfort. Here we have a great advantage gentriﬁcation, compared plan 38. gentriﬁcation, tenants of the building are transferred to alternative accommodation for project execution time. These can be a residential apartment or even a hotel room, where the contractor bears the costs of alternative housing. In this way, tenants should not suffer the renovation noise, dust, cutting off electricity and water and the like.
“קיים ורק מחכה לעידוד התוצאה”, יצחק מויאל. צילום: יח”צ Another advantage gentriﬁcation is receiving a new property entirely.As part of gentriﬁcation get tenants, rather than their old apartment, completely new apartment, a new building. For the most part, each tenant gets a bigger apartment old apartment that was in his possession. In this way, each resident also enjoy a better quality of life and signiﬁcant increase in the value of the property he owns.
But there are many measures which the beneﬁts of the plan 38 exceed those of gentriﬁcation. First the number of apartments that are added to the project. Since the project of gentriﬁcation are built at least 18 new housing units, the number of building occupants has increased signiﬁcantly. Who cared about privacy is important to him, he likes to live in a townhouse with a small number of tenants, likely to prefer a project plan 38, which added a lot less common to new tenants.Another point is the time of project implementation, which is much longer gentriﬁcation plan 38. If the project work plan 38 may take about six months to a year, the gentriﬁcation comes to about a year and a half to two years from the date of receipt of construction permits. The ﬁnal consideration is the contractor and its feasibility concerns in the project. In many cases you can not make gentriﬁcation, that the contractor does not pay to do so. Many contractors consider to make a gentriﬁcation project only if will realize that they can build between 2.5 to three new apartments on each apartment there. However, since the project plan 38 involves far less costs on the part of the contractor, then this is a more practical solution, much more condominiums can enjoy it.
Israel is waiting for a solution, and in this case the solution already exists and is just waiting to encourage government. If the government wants to prove seriousness and intent, it must encourage the implementation of projects throughout the country while reducing costs through taxes and bureaucracy.
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“Pinui binui” law passes first reading in Knesset, would enable judges to expel apartment owners who reject apartment swaps.
“My home is my castle” my no longer apply in Israel.
On Monday the Knesset approved the first reading of a bill that would further restrict the rights of homeowners over their property.
The bill, which comes as the latest in a series of laws concerning “pinui binui” [evacuate and build] urban renewal projects, would make it easier for companies to replace small or aging apartment buildings with larger, modernized ones.
Pinui binui programs have been promoted for years with laws offering companies incentives including tax benefits.
There have been few successful pinui binui projects, however, due in large part to opposition from residents who do not wish to exchange their homes.
In the framework of pinui binui projects, developers demolish buildings in areas designated for urban renewal, and replace them with larger, modernized buildings. Developers provide current residents with temporary housing while their old homes are demolished, and gives them apartments in the new building once it is completed.
Developers benefit from the arrangement by expanding the size of the building, selling off the added housing units.
To undertake such a project, developers require the consent of current residents, who must agree to the arrangement and vacate their homes. Development firms like the Manos Group complain that construction in high-demand areas is often blocked by a minority of building residents who refuse to participate in the apartment swap.
A pinui binui law passed in 2006 already puts obstinate residents under heavy pressure to comply, giving their neighbors the right to sue them for not enabling the project to take place.
The new law, however, would empower judges to force owners into complying and expel them from their apartments if 80 percent of the building’s residents signed on to the project.
The law, which was proposed by Justice Minister Ayelet Shaked (Jewish Home), is backed by the coalition and is likely to pass the two final readings in the Knesset.
The average price of owner-occupied dwellings in Israel rose by 8.45% during 2014, to ILS 1,352,800 (US$ 349,379). House-price growth picked up strongly from earlier price rises of 5.94% year-on-year (y-oy) to Q3, 6.84% to Q2, and 4.42% to Q1, according to the Central Bureau of Statistics (CBS).
When adjusted for inflation, house prices rose by 8.66% in 2014. On a quarterly basis, nationwide house prices rose by 2% (2.1% in real terms) during the latest quarter, Q4 2014. Gush Dan saw the highest house price increase during the year to Q4 2014, with prices rising by 14.69%. It was followed by the Southern district (13.81%),Sharon (10.98%), Tel Aviv (10.19%), and the Center and Jerusalem Periphery Towns (9.26%).
Other districts such as the Northern district and Jerusalem also experienced moderate year-on-year house price growth of 6.5% and 6%, respectively. Meanwhile, house prices in Qrayot Haifa (3.55%) and Haifa (2.31%) had relatively smaller increases, compared to other districts.
The country’s most expensive housing can be found in Tel Aviv, with an average price of owner-occupied dwellings of ILS 2,480,800 (US$ 640,701) in Q4 2014. It was followed by Jerusalem at ILS 1,712,700 (US$ 442,329) and Sharon at ILS 1,694,600 (US$ 437,654).
Israel experienced dramatic house prices rises in 2009 and 2010, despite domestic political uncertainty, security threats, and the global financial meltdown. The housing market returned to robust growth in 2012 and 2013.
The average price of owner-occupied dwellings rose modestly by 4.1% (-0.49% inflationadjusted) in 2008
Property prices rose by 22.35% (18.15% inflation-adjusted) in 2009.
Property prices rose by 17.04% (14.22% inflation-adjusted) in 2010.
Property prices rose by just 0.04% (-2.39% inflation-adjusted) in 2011.
Property prices rose by 5.82% (4.12% inflation-adjusted) in 2012.
The average price of owner-occupied dwellings rose by 7.38% (5.43% inflation-adjusted) in 2013.
Demand is starting to pick up after declining in 2014. In March 2015, the total number of dwellings sold rose by 34.3% y-o-y to 2,478 units. In 2014, the total number of new dwellings sold was 22,492, down by 9.9% from a year earlier. Similarly, the total quantity demanded also fell by 8.8% y-o-y to 40,728 units in 2014. The decline was attributed to the announcement of a 0% VAT plan by then Finance Minister Yair Lapid in March 2014, designed to exempt first-time home buyers from the 18% VAT. Globes reported that the announcement led to many frozen deals and to a sharp decline in new home purchases.
However, Prime Minister Benjamin Netanyahu suspended further discussion of the 0% VAT plan in early September 2014 and demanded that Lapid freeze the bill. The following day, December 2, 2014, PM Netanyahu fired Lapid from his post as Finance Minister, along with Justice Minister Tzipi Livni.
The total number of dwelling completions rose by 49.1% y-o-y In February 2015 to 4,415 units, according to the CBS. In contrast, dwelling starts fell by 5.9% y-o-y to 3,947 units in February 2015.
Recent history: house price rises cause social protest
The global house-price crisis missed Israel. From Q1 2010 to Q2 2011 average house prices rose almost 13%. One result was a social protest movement, which began in July 2011 with a Facebook group protesting Israel´s rising cost of living (specifically housing costs) as well the worsening condition of public services.
The central bank then raised the benchmark rate four times as the Israeli economy recovered from the global crisis to 1.5% in April 2010. Then in August 2010 the key rate was again raised to 1.75%, in a move to cool Israeli house prices and prevent a housing bubble. CBI rate hikes continued until the key rate reached 3.25% in June 2011.
House price rises therefore slowed during the second half of 2011. House price growth was only 0.5% between Q3 2011 and Q1 2012. The districts of Tel Aviv (-3.1%), Sharon (-2.9%), Gush Dan (2.3%), and Jerusalem (-1.2%) actually experienced house price declines.
In Q2 2012 house prices started to rise again and have been moving upward ever since. House prices rose by 19.7% from Q2 2012 to Q4 2014, with Gush Dan (27.6%) and Tel Aviv (25.9%) leading the price surge.
History: Israeli house prices and conflict
Israeli house prices seem to be affected by periods of conflict with Israel´s neighbours. House prices rose 28% (25.8% in real terms) between Q2-2003 and Q1-2006, due to the economic stability brought by the success of the electronics industry, investments and financial aid from the US, by inward investment, and by the improved security situation.
The war between Israel and Hezbollah, which erupted in July 2006, however rocked an already volatile political environment. Consumer and investor confidence dropped. Both supply and demand for housing fell.
The average price of houses fell 11.6% from the peak level of ILS 793,800 (US$205,488) in Q1 2006 to ILS 701,700 (US$181,646) in Q4 2006. Although the war formally ended in August 2006, the lingering uncertainty over the peace and order situation led to weakness in the housing market.
During 2007, the housing market recovered slightly with 4.9% y-o-y price increase (2.1% in real terms). However, the recovery was interrupted by the rising tensions with Iran and with the Hamas-controlled Gaza Strip. Israel’s continued expansion of Jewish settlements in East Jerusalem and in the West Bank also increased tension.
Tel Aviv’s housing market suffers the most whenever the country is in conflict. With the Israel-Hezbollah war, house prices fell 12.6% from Q1 to Q4 2006. In contrast, the Southern district, relatively unscathed by the conflict, registered an 8.9% price increase over the same period.
Property prices in other districts have partially recovered since the cessation of conflict at the end of 2006. Surprisingly, Tel Aviv recorded the highest house price rise of 22.37% y-o-y in 2007. The national average price also rose by 4.9% over the same period.
Despite the global crisis, Israel enjoyed double-digit house price rises. The highest house price increase was recorded in Tel Aviv, at 41% between Q1 2008 to Q4 2009. Only the Northern district registered a single-digit house price growth of 4.7%. The average price in Israel rose 24.2% between Q1 2008 to Q4 2009.
Affordable housing in short supply
Dwelling completions for the first two months of 2015 totaled 7,573 units, up by almost 10% from the same period last year, according to the CBS. In 2014, dwelling completions rose by 5.2% to 44,885 units from the previous year. Around 84% of the total completions, or about 37,803 units, came from the private sector.
In contrast to the rising completions, the recent figures of dwelling starts look dismal. From January to February 2015, total dwelling starts were at 8,246 units, a 5.9% decline from the same period last year, according to the CBS. In 2014, there were a total of 43,751 housing starts, a 7.7% drop from 2013. About 34,127 units, or 78% of the total dwelling starts were from the private sector.
Mortgage interest rates at historic lows
Mortgage interest rates in Israel are still low. In March 2015, the average mortgage interest rate in Israel was 2.12%, slightly lower than 2.34% in March 2014 and way below the 6.7% rate in January 2013.
To moderate the effect of the global crisis on the country’s economic growth, the central bank cut the key rate by a total of 375 basis points from October 2008 to April 2009, till it hit a record low of 0.5% in April 2009. But Israel was in fact less affected by the crisis than expected and by June 2011 key rates were back up to 3.25%.
In October 2011 the rate hikes stopped, and instead, the BOI lowered the key interest rate to 3.03%. It was the beginning of the continuous rate cuts over the succeeding years. The BOI´s most recent cut was in March 2015 when the key rate was cut to 0.1%, down from the previous rate of 0.25%. The rate reduction was in line with the bank’s intention to return the inflation rate within the 1-3% target, as well as to “support growth while maintaining financial stability”.
Is Israel´s financial stability under threat from high house prices?
Some say Israel´s sky-high housing market is a threat to financial stability, but the signs are reassuring. Though mortgage interest rates have generally declined since 2003, the mortgage market has expanded less than expected and was only around 26.1% of GDP in 2014, up from 18% of GDP in 2000. This is a modest level of borrowing in a developed country.
And despite the fact that by end- 2013 housing debt constituted around 70% of total household debt, households in Israel still have a large surplus of assets over liabilities. The ratio of total liabilities to total assets among Israeli households was about 8% in 2012 as compared to 16% in the UK and the US, according to the BOI.
Another good sign: in early 2014, unindexed variable-interest rate mortgages were only 36% of the banks’ total balance of mortgages, down from 77% of new mortgages in February 2009.
Nevertheless the BOI´s Supervisor of Banks has actively intervened to reduce system risk:
Variable-rate loans were limited from mid-2011;
The LTV ratio was limited towards end of 2012;
Capital adequacy and group allowances for doubtful debt were raised in early 2013;
The PTI (Payment-to-income) ratio was also reduced in mid-2013.
Poor yields in Tel Aviv – a tax hike may lower them still further
Gross rental yields on apartments in Tel Aviv are very low, supporting the view that properties are somewhat overpriced. Yields are under the 3% mark based on the Global Property Guide research in August 2014, ranging from 2.28% to 2.95%, with smaller apartments having higher yields.
By the end of 2014, the average monthly rent in the country had risen by 4.43% from the previous year to ILS 3,749 (US$ 969) per month. The most expensive rents can be found in Tel Aviv, with an average monthly apartment rent of ILS 5,746 (US$ 1,486) in Q4 2014, 53.27% above the national average. In Jerusalem, apartments rent at an average of ILS 4,072 (US$ 1,053) per month.
The Finance Ministry recently proposed to Minister of Finance-designate Moshe Kahlon a 20% purchase tax increase on housing for investment purposes, to discourage potential investors from buying rental apartments by making them less profitable. That way more apartments will be available for people who want to buy with the intention of occupying the property, since the tax wouldn’t apply to them. Kahlon appears to favour the proposal.
In the past 15 years, the homeownership rate in the country has been gradually declining as more households are renting due to the shortage of affordable housing. In 2008, the homeownership rate was 68.8%, down from 73% in 1995.
Though around 10,500 apartments were sold in March, 11% up from the previous month (Beersheva sales excluded) according to Globes reporting of Ministry of Finance statistics, the purchase of apartments by investors has generally been cooling off. On the other hand, says the Ministry of Finance, “since the beginning of 2015 there has been a high number, compared to recent years, of investors buying more than one apartment for investment over the past decade.”
Healthy economic outlook for 2015
Israel´s economy performed well during the last quarter of 2014, with annualized real GDP growth of 6.8%, way up on 0.2% the previous quarter, 1.7% in Q2 2014, and 3% in Q1 2014, according to the CBS:
In Q4 2014:
Private consumption was strong, rising by 7.9% y-o-y.
Government consumption rose by 8.5%.
Exports surged by 12.7%, following meagre growth of 1.3% the previous quarter, while imports contracted by 2.9%.
Israel’s economy expanded by 2.8% during the whole year of 2014, a slowdown from the previous years’ expansion of 3.2% in 2013, 3% in 2012, 4.2% in 2011, and 5.7% in 2010, according to the IMF. The slowdown was partly due to the Operation Protective Edge launched by Israel in July 2014, which aimed to stop rocket fire from Gaza Strip to Israel. The operation lasted for more than one and a half month. Both parties accepted a cease-fire on August 26, 2014.
The Bank of Isreal expects 3.2% GDP expansion in 2015 and around 3.5% in 2016 around 3.5% in 2016. In March 2015, the country’s unemployment rate was 5.3%, according to CBS. Despite the economic slowdown in 2014, unemployment fell to 5.9% from around 6.2% in 2013.
Inflation was -1% in March and February 2015, down from -0.5% inflation in January 2015, according to the CBS. In 2014, the country’s budget deficit was around 2.8% of GDP.
The BOI’s target of 1-3% inflation is seemingly unattainable this year as the central bank’s research department predicts -0.1% inflation in 2015. The target is only expected to be reached in 2016, when inflation is predicted to rise to 1.7%.
Prime Minister Benjamin Netanyahu, of the Likud party, retained his post as Israel’s prime minister after winning the latest legislative election last March 2015. Likud won 30 seats, while the opposition Zionist Union came second, nabbing 24 seats.
Likud’s win came as a surprise since it had trailed behind the Zionist Union in pre-election polls prompting PM Netanyahu to state that a Palestinian state will not be established during his term (if he remained in power), in an interview published by the daily Maariv newspaper before the March 17 elections. This statement, though now retracted, and Netanyahu’s return to power, puts Israel in a difficult position in relation to the US and the international community´s support for the establishment of a Palestinian state in East Jerusalem, the Gaza Strip, and the West Bank.