Part One: Demystifying Urban Renewal in Israel
Everybody talks about urban renewal but what is it?
The purpose of this article is to make some order vis-à-vis the different types of urban renewal as well as help you understand how this occurs in Israel. Urban renewal is not an Israeli invention; it is a global phenomenon that exists in city centers around the world. These same city centers were built 70 years ago and more, and today the buildings are old and crumbling, leading to a need for renewal. A scarcity of land available for new construction in Israel combined with the subsequent country-wide housing shortage led the Government to develop a national plan.
Urban Renewal: a Solution to Safety Issues
The second important point of note is that urban renewal provides a solution to a wide range of problems, including safety and security. Since the majority of apartments within buildings are privately owned, the burden to renovate buildings in order to strengthen them in the event of a major earthquake falls primarily upon the individual apartment owners. Renovations are so costly that most people cannot afford them, despite the danger. Urban renewal provides a solution for these potential geological concerns. In addition, we live in a region of wars and geopolitical instability, where urban renewal offers a structural response to these concerns. Urban renewal further engages with issues including sustainability, population density and the increasing demand to live in cities. This in turn leads to price hikes in city centers. The rise in housing prices could be slowed by the addition of construction in cities; urban renewal may provide an appropriate response.
There are many terms related to urban renewal, such as the National Zoning Plan TAMA 38/1 and TAMA 38/2, and Clearing and Building (Pinuy Binuy).
Let’s make some order in these terms.
National Zoning Plan 38 (TAMA 38) has two types: the first type is called TAMA 38/1, and its purpose is reinforcement and addition to an existing building. The contractor takes it upon himself to renovate a building at his own expense. In exchange for covering renovation costs, building permits and taxes, the contractor builds an additional floor or floors and sells these apartments. In the process the building is reinforced, and usually a security room and a porch are added to each apartment and often an elevator and parking are also added.
The second type is TAMA 38/2. TAMA 38/2 is the construction of a new building after tearing down the old one. Usually in a TAMA 38/2 project many more housing units are built in place of the previous building, as compared to a TAMA 38/1.
There is a lot of confusion between TAMA 38/2 and Clearing and Construction (Pinuy Binuy). While both deal with demolition and rebuilding, Pinuy Binuy is the definition of a regulation that includes tax issues, and evacuation of a bigger area, usually a complex of buildings. In practice the result is that Pinuy Binuy projects take much longer, sometimes up to 20 years before they are implemented, while TAMA 38/2 provides a faster solution; between 5 to 6 years on average.
How to Initiate an Urban Renewal Project:
First of all, you have to check when the building was built. TAMA 38 only applies to buildings built before 1980. Next, you should find out whether it is a TAMA 38/1 or TAMA 38/2 project. Contractors usually prefer TAMA 38/2– a preference often shared by residents. Although the apartment needs to be evacuated for 3 years, it is more convenient than living on a construction site. Another advantage of TAMA 38/2 is that the end result is a completely new apartment.
Choosing a Contractor
In the media we often hear about failed urban renewal projects, involving bankruptcies and contractors abandoning projects. How do you choose the right contractors? And how do you protect the interests of the resident tenants?
A number of factors need to be examined when choosing a contractor:
- Financial strength of the contractor: You must ensure that the contractor has sufficient funds to realize the project.
- Experience: It is preferable for a contractor to have specific experience in the field since urban renewal is not a typical residential real estate project, due to specific requirements.
- Professionalism and expertise: You should examine the contractor’s engineering department. Do they employ civil engineers and how do they carry out design, quality and safety control? Do they work transparently and with proper accounting regulations?
Urban renewal projects require trust, patience and mutual understanding. Projects are often subject to many unexpected changes. Regulations in Israel tend to be unstable, at both the governmental and the municipal level. Without trust between the parties involved, there is a danger that the project will fail.
This first article in the Urban Renewal series, explains the basic types of urban renewal projects in Israel and how to evaluate a potential contractor for the project. The upcoming article will explain the criteria for selecting a legal firm that will protect resident’s interests in an urban renewal project.
- Steinberg & Co. is a real estate law firm specializing in representing foreign residents and assisting them at every stage of the purchasing process. We are experienced in handling the process of real estate transactions in Israel for non-Israelis.
The content of this article is intended to provide a general information to the subject matter and is not a substitute for legal consultation. Specific legal advice should be sought in accordance with the particular circumstances.