“TAMA 38” projects are win-win – for the customers and developers

The recipe for success is close financial support to ensure organized and responsible management of the project

Construction in Israel. (photo credit: MARC ISRAEL SELLEM)
Construction in Israel.
(photo credit: MARC ISRAEL SELLEM)
"TAMA 38” began life as a national outline plan for reinforcing structures against earthquakes by granting increased building rights and shortening bureaucratic procedures for obtaining building permits, thereby encouraging homeowners to reinforce their buildings. The basic pitch: Developers and apartment owners invest in renovating and protecting the building in exchange for additional building rights and planning, construction and taxation benefits. Over time, the program was split into two main channels: renovations of existing buildings with the addition of new floors, parking spaces, and safe rooms, and projects where the old building is completely demolished, with a larger and taller building put up in its place (known as pinui binui – evacuation and reconstruction). This latter track guarantees new apartments for the previous tenants, alongside apartments for sale on the free market to cover the cost of the project and allow the developer to turn a profit.
The Planning Administration in the Finance Ministry recently announced that it does not intend to recommend extending “TAMA 38” beyond its current May 18, 2020 end date, leaving a big question mark over the continued existence of the program. Despite this, 15 years after it was signed into law, it has become clear that “TAMA 38” was not only an opportunity to reinforce old structures against earthquakes, but also a valuable way to upgrade and increase the value of property to everyone’s benefit.  The developers received permission to build up to two floors or more and benefitted from the sale of the new apartments, and the tenants received a renovated and reinforced building without having to finance the work themselves.
“As soon as we receive a request for a mortgage for an apartment that is about to undergo a “TAMA 38” process, we first want to examine the agreement signed between the developer and the tenants,” explains Evgeny Rabazin, director of the Mortgage Department at Bank Hapoalim, “Some TAMA projects are carried out without financial support. In these cases, it is vital to look into the developer and their previous record.”
All parties involved in a “TAMA 38” project will tell you that professional financial guidance under the Sales Law – both for the developer and contracting company as well as the apartment buyers – is a critical condition for its success.
“When a financial institution is approached with financing the purchase of an apartment in a “TAMA 38” project, it first wants to see that the project is well-managed,” clarifies Ilay Bar, co-CEO of “Eco City”, which initiates, plans and executes “TAMA 38” urban renewal projects in Tel Aviv and Gush Dan. “They want to see evidence of a sound contractual arrangement between the existing apartment owners and the developers – that there are no problems or irregularities that could stall the project, including with the budget. They will also check that the sales rate matches the commitments signed by the developer, and no less importantly – that all the purchasers’ funds are transferred to a closed escrow account and released only for the purposes of the project in question and not ‘shifted’ to other projects by the developer or contractor. Once the financial support is there, it means that even in the event of a failure, there is someone who can take the project into their own hands and continue to manage it to its successful completion.”