Ilan Rubinstein – Realtor

TAMA 38 – Path to Profit 

Last month, I promised to cover another government program called TAMA 38.

Israel is uniquely located between Africa and Asia, along a geological fault line called the Great Rift Valley. The land has historically suffered from a major earthquake every few centuries with resultant high casualties and extensive damage. Rather than waiting for the inevitable to recur, various measures were proposed in order to prevent the possibility of devastation and financial ruin. In 1978, the Israeli government implemented new standards for building which created structures that can better withstand earthquakes. However, the problem of less solid, existing housing remained.

In 2005, the Israeli government enacted legislation called TAMA (National Outline Plan) 38. This law promotes private sector reinforcement of building structures completed prior to January 1st, 1980 via the granting of additional building rights as well as tax incentives to developers. The TAMA 38 program got off to a slow start for a number of reasons including objections from individual tenants, local authorities’ reluctance to allow for higher levels of urban congestion, and economic viability. Consequently, revisions were made to the law which included increasing the incentives and reducing the requisite majority of agreeable tenants required to start the ball rolling from unanimous to 66% of the tenants.

TAMA 38/1

The plan is as follows: Tenants in a building get together and sign an agreement with a developer who agrees to refurbish and strengthen the building, adding some or all of the following: Additional floor space, security rooms, balconies, elevators, parking, exterior cladding and more. In consideration, the tenants pass on the new building rights provided under the legislation to the developer for the construction of new apartments on additional floors. Note that with TAMA 38/1 there will be a high level of noise, dust and inconvenience for the duration of the work.

The builder is then able to sell these apartments on the open market which, along with the tax breaks, enable him to undertake the remedial work and improvements and make a tidy sum to boot. Classic win-win, except that TAMA 38/1 is only viable in higher value property areas and not necessarily where it is most needed for example Bet Shean and Afula. It is hoped that further revision of the law will make some of these other areas more viable. Such projects are often completed within 12-18 months from commencement of work.

TAMA 38/2

This plan involves demolition of the existing blocks and construction of brand new taller buildings in a more pleasant, intelligently planned and aesthetic setting. These projects can take between 5-10 years. This is a more extensive enterprise which attracts some of the larger property companies. TAMA 38/2, when it fully takes off, could significantly improve the stock of housing, both in terms of quality and numbers.

Owners are thus able to upgrade an old dingy asset to a new larger one complete with all the mod-cons. Tenants are provided with replacement accommodation during construction. An 80% majority is required to pass this category of redevelopment.

“SHOW ME THE MONEY!”

There are several ways to capitalize on TAMA 38.

Firstly, one can purchase brand new TAMA 38/1 apartments in a refurbished building with savings of 10-20 percent on regular developments.

Secondly, one can buy an existing apartment currently at some stage of planning or construction in either TAMA program from owners that cannot wait and need to sell now. In addition to receiving income from rent, there is a significant upside in the hope of trading old for new or getting free extensions and refurbishment. Such upside, if realized, can provide substantial capital gain over the medium term.

Thirdly, one can invest as a partner with a developer or into a fund, rake in a share of the profits and/or convert the investment into a substantial discount on purchasing one of the new apartments. Turnaround is expected within two to three years.

There are some great ways to make a good return on the real estate changes taking place in Israel. For independent advice, contact the writer.

Ilan Rubinstein is a licensed real estate expert with over 25 years property experience in the UK & Israel. Ilan runs I.L.A.N. Estates & Investments and is dedicated to assisting clients buy and sell new and existing properties, investments and profitable businesses throughout Israel. 

This article is intended as a general reference guide only and no warranty is given on any information contained herein.

 

Tel: +972(0)77-410-8011

Cell: +972(0)504-910-604

www.ilanrealestate.com

office@ilanrealestate.com

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