Urban Renewal in Israel — Part 1: “Pinui Binui”

Urban renewal in Israel generates new, creative construction in preexisting built-up areas. The scarcity of land for new construction in Israel and the subsequent housing shortage throughout the country led the Government fourteen years ago to develop this innovative solution.

There are two main schemes for urban renewal projects. The first is known as pinui-binui (evacuation and construction) and the second is called TAMA 38. In this article, we will focus on the former.  TAMA 38 will be addressed in a future feature.

What is Pinui Binui?

Pinui binui is a process that permits the replacement of old housing complexes and their outdated infrastructures by a large number of new apartment buildings with modern and innovative infrastructures including communications, electricity, water supply, and sewage systems.  Under this scheme, existing residents enjoy new and more spacious apartments, without having to leave the neighborhood they know and love.

An example

The residents of Rechov Aravei Nahal in Giv’atayim lived for decades in Binyanei rakevet* – seven buildings with 126 apartments that were 50 years old. Under the pinui binui scheme, each of the seven buildings were demolished and four towers, with between 18 to 23 floors containing a total of 528 apartments, were built in their place. Today, this project is known as “Central Heights”. In the end, the project developers managed to get planning permission to build four new apartments in place of each existing one!

How did the residents benefit? Each veteran received a brand new, 4.5 room apartment on floor 10 or higher.  The apartments all include a modern kitchen and bathrooms, a balcony and two covered parking spaces. Each new building showcases a luxurious lobby,  a state of the art elevator, and manicured gardens. The market price of these new apartments is at least 3.3 million shekels compared to apartments that have not been upgraded, valued on average at 1.1 million shekels.

What incentivized the developers under this scheme? They now have 402 apartments to market and sell on the free market at the full price.

Declaring pinui-binui plans on an existing housing compound

A pinui binui project relies on a 2002 Addendum to the Planning and Building Law/  Under the law, a specific urban area is declared an area of evacuation for the sake of reconstruction – namely, existing buildings may be replaced by new construction, with significantly enhanced building rights (several times greater than the existing rights), and which allows more room for green areas.

Typically, the areas declared as sites of pinui binui are areas with relatively few residents, with outdated infrastructure, and/or neighborhoods with socio-economic challenges. 

How is the project implemented?

First, the residents receive a notice that they live in an area that has been designated for pinui binui.  Homeowners with an understanding of the issues at hand, may rally together and initiate meetings with developers in order to advance the project.  In some cases, a developer who knows that a specific compound has the potential to undergo pinui binui, will approach the residents and attempt to convince them to sign up for the re-construction project.  The scheme requires the signed agreement by 80% of residents (owners).

What happens when a resident rejects the proposal? In 2006, a reform in the Pinui Binui Act was introduced which stipulates that residents who refuse to accept the offer of pinui binui without any clear or reasonable explanation, are responsible for damages caused to other residents in the building as a result of a delay or cancellation of the project.

Evacuating the Occupants

Under pinui binui, there are two options for evacuating the residents during the project. The first option is to move occupants to rental apartments in close vicinity of their existing homes. The second is “binui pinui” – first build, then evacuate. With the consent of the authorities, the builder first develops a new structure near the buildings slated for removal. Upon completion of the construction of the new building, the tenants of the building slated for demolition are moved to the new building (without an intermediate period of rent). After evacuating the building, the developer pulls it down and builds a new building in its place, which is then populated by the occupants of the next building to be demolished, and so on.

In an attempt to encourage pinui binui, existing homeowners enjoy State grants and tax benefits such as exemption from mas shevach (capital gains tax), mas rechisha (purchase tax), VAT on construction services, permit fees, hetel hashbacha (improvement levies), and discounts on municipal taxes in their new apartments.

Investment in urban renewal in Israel

The potential profit for owners of apartments in pinui binui projects whets the appetite of many investors. Some entrepreneurs invest not in one two of these apartments, but in multiple properties within complexes.  Once an area is designated for pinui binui, there are often homeowners who prefer to sell the apartment immediately and avoid the lengthy process of the project. Of course, the price they ask is higher than the market price, but still lower than what a new apartment would cost in a newly built project.

However, as with any long-term investment, pinui binui does not come without its risks.  Questions arise such as will the project definitely be launched? How long with the process take?  What will the economic returns on the investment be?

For the risk-taker who has patience, the potential is huge.  There are a large number of urban renewal projects in different regions in the country. If you are interested in investing in apartments that are designated for pinui binui, or if you would like to invest funds in the financing of a pinui binui project, please contact us.

*“Railway buildings” were designed, at the initiative of government, to deliver a cheap and fast housing solution during the sixties and seventies in response to the large waves of immigration to Israel. The buildings are modular structures on two, sometimes three or four floors, with a typical distribution of two small apartments on each floor.

The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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