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The Association of Contractors & Builders in Israel, on Wednesday charged the bureaucratic apparatus of the government was fueling corruption in the construction sector and leaving real estate companies no other choice but to go abroad.
"In the current situation, I can see why contractors would not build in Israel, the risks here are just too high and it is not profitable," said Nisim Bublil, president of the Association of Contractors in Israel at a conference on developments in the real estate sector in Israel. "Israeli real estate companies have fantastic results abroad, while the results in Israel are less good mainly due to the bureaucracy and the resulting uncertainty these companies face when trying to develop projects in Israel."
Bublil explained that the uncertainty over the timing of, for example, planning and licensing procedures or allocation of land for construction by the authorities and the Israel Land Administration was raising the risks of local projects and forcing constructors and builders to seek unconventional means.
"It is like playing Russian roulette. But if a constructor had certainty over timing of permits he would not need to ask for favors and revert to corrupt methods," said Bulbil.
This month several businessmen were arrested under suspicion of involvement with bribery in exchange for advancing the real estate projects for contractors and entrepreneurs. Last week, the police arrested a suspect in a case that had been previously undercover, in which they believe officials in the National Insurance Institute were offered bribes to pave the way for cushy real-estate deals.
Also speaking at the conference, Yossi Gordon, CEO of the Association of Contractors claimed the bureaucracy within the Israel Land Administration was damaging the economic development of the construction sector and the economy as a whole and therefore urged the government to speed up the reform.
Similarly, the Maalot securities credit rating agency noted in its annual survey of the local residential property market that, although the sector overall in 2006 has been benefiting positively from a strong economy, low inflation and low interest rates, the market for residential developers was still bearing higher than average risk factors. Among the high-risk factors mentioned by the Maalot economists was the governmental bureaucracy, which is responsible for the relatively long delays in the development of projects and causes the uncertainty over when, if at all, necessary permits will be granted.
Furthermore, high risk in the market was explained by volatility in the demand for apartments, in the supply and in the prices, as well as increased competition, which is eroding available spaces. The survey found that in the months January to October 2006, the number of residential deals rose by 11 percent compared with the same period in the previous year. On the supply side, the volume of new constructs fell by 5% to 24,500 units overall across all areas of the country apart from Tel Aviv, which rose by 1% in the first nine months of 2006, compared with the previous year.