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New construction legislation from Knesset’s last days kicks in

Small but significant amendments aim to help urban renewal and deliver greater transparency for homebuyers

An apartment building in the northern Israeli town of Kiryat Bialik undergoing renovations, on October 24, 2018. (Meir Vaaknin/Flash90)
An apartment building in the northern Israeli town of Kiryat Bialik undergoing renovations, on October 24, 2018. (Meir Vaaknin/Flash90)

In the closing days of the Knesset, while attention was focused on the Tel Aviv Metro plans as they hang in the balance (and did not pass), two small but significant changes to building regulations did cross the legislative line, with potential for real impact on buyers and the urban landscape.

TAMA 38, also known as the national outline plan that allows for upgrades in existing buildings with the addition of extra floors, was given an extra year of life back in March. It is widely agreed to have failed in its primary purpose set in 2005, which was to provide earthquake resistance and safe rooms in older buildings, especially in the periphery. But it quickly became a key tool in urban renewal in the center of the country, where land is more expensive (and hence deals more lucrative). The scheme also works to add density to existing cities by building upwards.

Just before the Knesset dissolved last month, the “Shaked Alternative” to TAMA 38 was passed, although it’s likely that this will be an addition to rather than a replacement for the existing schemes which take a number of years to complete).

According to the Israel Builders Association, while the legislation still does not address the needs in the periphery, it will help move urban development along.

Construction of new residential buildings in the northern Israeli city of Harish, on January 15, 2019. (Flash90)

The changes provide more flexibility around different urban renewal tracks. Where Pinui v’Binui — demolition and rebuilding, also known as TAMA 38(2) — is selected it will be possible to increase the number of apartments by about 400% and in some cases even more, according to the new scheme. New buildings constructed through this scheme also need to deliver up to 10% of public space, and conditions can be spread across a complex of buildings increasing the flexibility.

In the periphery, where the value of land is lower (and therefore the incentives are lower), the interior minister can move to determine additional rights to build an extra 550% in Pinui v’Binui projects.

Separately, after considerable haggling over the details, a key amendment to the Sales Law pushed by outgoing Housing Minister Ze’ev Elkin also passed through the various legislative stages. These changes set out to limit increases in the price for newly built apartments by restricting the application of the construction input index. This is a mechanism to ensure that, over the course of an extended building program, contractors are able to share increases in the costs of raw materials with purchasers.

Coalition chairman Zeev Elkin (photo credit: Uri Lenz/Flash90)
Housing Minister Zeev Elkin (photo credit: Uri Lenz/Flash90)

The new regulations are designed to make sure that the construction index applies only to construction elements of the building — and not to the price of the whole building (which includes elements such as land cost and developer profits), thereby saving the buyers of new apartments thousands of shekels.

In the future, construction companies will only be able to link up to 40% of the apartment price to the index, and will not be able to apply for any construction-linked increase after the agreed delivery date of the apartment, unless the purchaser is late with payments.

The other key element covered by the changes is late delivery where penalties are set out and increased to add to the protections for buyers. Assuming that the buyer pays on time, the seller may not collect any additional interest or costs linked to the index after the agreed delivery date. And if the seller is late in delivering the apartment by more than one month, the buyer becomes entitled to compensation.

This all assumes that the delays are caused by the seller rather than the buyer, and aims to reduce the delay in delivering new apartments to buyers by sufficiently penalizing the sellers.

Elkin said that changing the Sales Law to protect buyers and promote transparency towards them was a key goal throughout his tenure.

“It was not easy…The amendment to the legislation is the result of significant work by the Ministry and dialogue with all the relevant parties in the real estate market and intensive discussions in the finance committee…to promote the correction of years of injustice,” he said.

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