TABLE OF CONTENTS
Real Estate – Economic Post
Letter from the Editor
The state of the real estate market.................................................... 08
Dear Readers,
Welcome to the Passover combined edition of the
Real Estate and Economic Post magazine. Among
the many articles in this issue, we have two panels of
experts analyzing the current state of the real estate
market and the economy as a whole. We also have
interviews with Economy Minister Naftali Bennett and
Prof. Avishai Braverman, chairman of the Knesset’s
Economic Committee. We have a talk with Nissim
Bublil, president of the Builders Association of Israel,
and an article about how to fortify one’s apartment
building against earthquakes.
Israel has a very highly developed science-oriented
economy, and in that area we have a story on JVC, one
of the country’s most forward-looking venture capital
funds.
On behalf of myself and the staff of The Jerusalem
Post supplements department, I would like to take this
opportunity to wish our readers around the world a
very happy and healthy holiday season.
Juan de la Roca
Taking the necessary steps forward.................................................. 10
John Benzaquen
Jerusalem: The golden opportunity................................................... 14
Alyssa Friedland
Upward and onward.............................................................................. 18
James Harris
An inside look at the local economy................................................. 22
Juan de la Roca
Tama 38: Forewarned is forearmed................................................... 24
James Harris
Evolving from ‘start-up nation’ to ‘exit nation’................................ 28
John Benzaquen
Enjoy your reading,
Juan de la Roca
Investing in US real estate.................................................................. 30
Jason Blackshaw
Panel: The ins and outs of the industry............................................. 34
REALESTATE
John Benzaquen
EconomicPost
April 2014
Attention, smartphones calling........................................................... 38
James Harris
JVC at the forefront of the science-oriented industry..................... 40
Juan de la Roca
A new socioeconomic order............................................................... 42
Real Estate - Economic Post
April 2014
1
Editor
Juan de la Roca | [email protected]
New concepts in urban planning........................................................ 44
VP Sales and Business Development
Sraya Kerner | [email protected]
Catering to the business traveler....................................................... 45
Chief Commercial Office
Yehuda Weiss | [email protected]
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Alan Barkat
April 2014
John Benzaquen
Ehud Lahav
Managing one’s mortgage................................................................... 46
Judah Massias
The 10 commandments of buying a home........................................ 47
Yochanan Altman
Living history on Rothschild Boulevard............................................. 48
Jason Blackshaw
Anglo-Saxon celebrates its 50th anniversary.................................. 49
Jason Blackshaw
Closed Compound Tel Aviv
(Adi Benzaken)
The state
of the real
estate market
By Juan de la Roca
T
he constant rise in real estate prices is
one of the most pressing problems in
Israel's dynamic real estate market. But
despite the efforts to at least halt the price
increases, prices continue to rise. In the last week
of February, the chief government appraiser
published figures that show that during 2013,
real estate prices rose by 4.7 percent. According
to estimates, 2014 will not be much different.
Average real estate prices are expected to rise by
5%.
High-ranking government ministers are still
trying to talk down real estate prices, but they are
still on an upward trend. The continuing rise in
the price of real estate is very worrying because
it destabilizes the socioeconomic structure of the
country. Even now, real estate prices are beyond
the reach of most. Young married couples are
finding it more and more difficult to acquire
an apartment. They try to get larger mortgages,
which translate into higher monthly payments.
Since salaries have not kept up with the rise in
real estate prices, this is something of a time
bomb.
This is especially true for the floating rate
aspect of the mortgage. At present, interest rates
are at a historic low. They cannot continue at
their current levels, and at some point in the
foreseeable future they will rise. When this
happens, monthly mortgage payments will rise as
well. It is true that the Bank of Israel has restricted
the floating rate element in the mortgage realm,
but when one’s monthly mortgage payments are
maxed to the limit, every additional shekel could
be the last straw.
Consequently, parents are becoming more
involved in their offspring’s housing problems
as more and more young couples are forced to
live with their parents or in-laws. Furthermore,
8
April 2014
parents are now forced to share in the financial
burden of their offspring either by generous
financial grants or by taking part of the mortgage
burden upon themselves. In the past, parents
helped; but now, the help involved is much
greater.
Oren Mor, CEO of Icom Development and
Construction, says that the constant rise in real
estate prices is caused by "faulty government
planning; lengthy and frustrating authorization
procedures; and shortage of land for building
purposes." In a nutshell, there is an insufficient
supply of available housing compared to demand.
Without an ample supply of new housing, prices
cannot decrease.
Dudu Tavor, owner and manager of the
Adirim construction and development company,
says, “The insufficient supply is also caused by a
shortage of building land, as well as a shortage
of labor.”
The real estate industry in Israel is indeed
hampered by a shortage of land and a shortage
of labor, but it is also influenced by several
other major factors, such as a shortage of small
two- and three-room apartments and the
unwillingness of most Israelis to live outside the
municipal boundaries of Tel Aviv, Jerusalem,
Haifa and Beersheba. The shortage of small
apartments means that the average real estate
prices are artificially high, while the reluctance
to live in peripheral areas increases demand in
the central areas where shortage of building land
limits the amount of housing on offer.
Eddie Caspi, the general manager of Caspi,
which specializes in urban upgrading, says,
"The peripheral problem is more psychological
than geographic. The periphery in Israel is very
different from that associated with peripheral
areas in the US, Canada and Australia. For
example, Beit Shemesh, a 20-minute drive
from Jerusalem, is regarded by many locals as
periphery. The same holds true for Kiryat Gat, a
30-minute drive south of Tel Aviv; or Or Akiva,
a 20-minute drive south of Haifa. If newlyweds
were willing to reside in these areas, it would
go a long way toward solving some of the most
pressing real estate issues."
Beit Shemesh is a good case in point. For
new immigrants from, say, the US, living
in Beit Shemesh is like living in Jerusalem;
consequently, demand for real estate from new
immigrants is brisk. Beit Shemesh is also slowly
losing its peripheral reputation among local
Israelis, and demand from young Israelis from
the surrounding areas is increasing.
Beit Shemesh is a great place to live. Nestled
in the Judean Hills, it has an excellent climate.
Furthermore, it is located 20 minutes from
Jerusalem, is 20 minutes from Ben-Gurion
International Airport and 40 minutes from
Tel Aviv. Residents of Beit Shemesh can find
employment opportunities in Tel Aviv, Jerusalem
or the logistics center surrounding the airport.
Beit Shemesh had its problems because
for many years the Housing Ministry has
encouraged the construction of housing for the
haredi population, and that tended to discourage
other communities from making Beit Shemesh
their home. But that is now changing. In a talk
with The Jerusalem Post a few months ago,
Housing Minister Uri Ariel said that this would
stop.
Making areas like Beit Shemesh more
attractive to all and persuading people to live
outside the large established metropolises is one
of the means to solve the shortage of housing
in Israel and the constant rise in prices that it
incurs.
Nissim Bublil
(Courtesy of Association of Contractors and Builders in Israel )
Taking
the necessary
steps forward
W
hen the new government of Israel
took office last year, the officials said
that one of its main tasks would be to
bring down real estate prices. Now,
one year on, real estate prices are still rising.
The government is trying to increase the sale
of land and streamline the process of obtaining
building permits. However, this is not helping
10
April 2014
much because real estate prices are still creeping
upwards. Real estate agents are critical of the
government’s policy.
Nissim Bublil is the president of the
Association of Contractors and Builders in
Israel. In this interview, he explains that while
the government is showing signs that it is trying
By John Benzaquen
to improve matters, it is necessary to take
more stringent steps to minimize the stumbling
blocks.
“Some of the steps being taken by the
government to increase supply and stem the rise
in prices are very positive, namely increasing
the sale of building land to developers and
streamlining the process of authorizing building
Interveiw with
Nissim Bublil
Another major stumbling block is the credit
problem. The Bank of Israel has decreed
that the banking system can supply only a
certain percentage of its total loan portfolio to
construction and development companies. Most
banks have reached their approved ceilings,
forcing many companies to obtain financing
from other sources that are more expensive.
Hence, that is another factor that is forcing
building costs up and, consequently, the price to
the end user.
There is also the problem of obtaining
building permits. The planning process in Israel
is very long. From the time a decision is made
until the construction is completed can take
more than 10 years. This means that decisions
made now will only come to fruition in the
distant future.
Bublil making a point
(Courtesy Association of Contractors and Builders)
projects. Nevertheless, there is still a shortage
of housing available, and the Israel Land
Administration is trying to sell land in areas
where there is no demand,” he says.
“Furthermore,” he adds, “many senior cabinet
ministers have told the public that prices will fall
in the future. This has had the effect of reducing
the demand for real estate because prospective
buyers ask themselves why they should buy now
when prices are set to fall in the near future.
But things are changing. During the past two
months, demand has recovered because families
still need a place to live.”
But are prices falling? Is supply increasing
because these steps should bring about a fall in
prices and this is not happening?
Generally speaking, prices are not falling. I
consider the figures published by the Central
Bureau of Statistics to be accurate. According to
their figures, real estate prices in between 2007
and 2012 rose by 72% in 2013 they rose by 7%
and this year they may well continue to rise.
We are also seeing an increase in the number
of rentals. Demand is increasing from those
families that are not buying housing but are
renting. This trend of a rise in rental prices has
been augmented by government policy that
discourages the purchase of real estate by small
investors.
Historically, the residential rental market has
been based on these buyers. Some purchase
an apartment for their offspring; and while the
children are growing up, the parents rent it out.
Others buy apartments solely to rent them out
and receive a regular income. And others buy
apartments because they want to make a capital
gains profit in the wake of rising real estate
prices.
The government wanted to decrease these
purchases because it believed they were
artificially increasing demand when supply
was low and consequently driving up prices.
But since the supply of rented apartments has
declined and demand has increased, prices have
risen substantially.
12
April 2014
Prices will only fall if there is a substantial
rise in supply, ultimately in housing starts. The
grassroots, so to speak, of housing starts is
building land, and that is in short supply. It is in
short supply despite the fact that the government,
through the Israel Land Administration, is
increasing the sale of land.
But not all land released for building
purposes is usable. Some of the land cannot
be used immediately because its use is linked
to infrastructural developments, primarily
transport infrastructure such as roads and
bridges. Much of the land is in areas where many
people are reluctant to live. From our point of
view, this land is worthless because no clearminded developer would invest in housing that
is very difficult to sell. The government should
release land that can be used immediately and in
areas that are in demand.
Furthermore, the constant increase in
regulations is also having a marked effect on the
rise in real estate prices. In the past five years,
this has added about NIS 220,000 to every
average apartment.
What are the major stumbling blocks in the
industry?
Shortage of skilled labor and insufficient
credit facilities. At present, there is a shortage
of 20,000 skilled construction workers. Two
years ago, the government approved an increase
in the number of foreign construction workers
to 8,000. However, so far we have only 5,000
of the promised 8,000. The shortage of skilled
construction workers is also contributing to
high building costs because the shortage of
workers tends to increase wages.
The government wants to administer the
recruitment of foreign building workers itself,
and this is creating problems. It wants to bring
construction workers from Eastern Europe,
mainly Moldavia and Bulgaria, as well as China.
We prefer construction workers from China; but
if the construction workers from Moldavia and
Bulgaria are good professionals, they are very
welcome.
Why look for construction workers in the
Far East and Eastern Europe when one has a
virtually unlimited reservoir of construction
workers in the West Bank?
At present, we have 28,000 Palestinian
construction workers, but we cannot rely
on that. They are excellent workers, but an
over-reliance on Palestinian workers puts the
whole construction industry at the mercy of
the security situation. If the security situation
deteriorates, the army will institute a closure,
and the Palestinian workers will not be able to
get to their places of work. Another big problem
with Palestinian construction workers is that
they have to get up very early in the morning
to be able to navigate the security checkpoints.
And they have to leave work early to be able to
get home at a reasonable hour.
The government has stated that it wants
to build 100,000 apartments to overcome the
accumulated shortage of some 100,000 units.
Are these ambitious plans feasible or are they
in the realm of fantasy? And is the construction
industry up to it?
Yes, we are! Provided that land is available and
we have the financial credits and the number of
construction workers we need. In the 1990s,
during the large wave of Russian immigration,
we had 100,000 housing starts a year. We can do
that again.
With regard to the government’s plans being
ambitious, yes they are. Are they feasible? Yes.
Because where there’s a will, there’s a way. The
question remains: Is there a will? These are longterm plans; and for them to succeed, they must
be promoted by subsequent governments.
What are your expectations for this year?
What trends are anticipated until the end of
2014?
I do not seem dramatic changes in 2014
compared to 2013 that will increase housing
starts or housing completions. Demand will
continue to outstrip supply; consequently, prices
will continue to rise, albeit more slowly.
Fountain in Jerusalem
Jerusalem:
The golden
opportunity
By Alyssa Friedland
W
ith a strong seller’s market for the
past four years, rising prices and a
shortage of apartments to satisfy
the seemingly endless demand, why
should anyone buy property in Jerusalem right
now?
The real estate market in Jerusalem is
experiencing an extended period of strength,
14
April 2014
with steadily rising prices. When the global
financial crisis hit in 2008-09, Israel’s economy,
specifically its real estate sector, was mostly
insulated from the difficulties experienced by
most other developed countries. Thanks to
conservative lending practices, the level of home
foreclosures has remained very low, while other
countries have suffered dangerously high levels
of foreclosures, which have rippled negatively
throughout other sectors of their economies.
The stability of the Israeli real estate market,
especially in contrast with the volatility of
worldwide stock markets, has had strong appeal
to investors looking to shelter their capital from
more risky alternatives. The prospect of 5- 10%
annual appreciation, combined with low-cost
A view of the Old City wall
mortgages, has kept the demand for property
in Israel’s capital unabated. Despite the steady
increase in prices over the past four years,
buyers -- both foreign and domestic -- have
continued to upgrade from smaller homes, buy
starter homes for married children and purchase
investment homes.
Being in the business for more than 18 years
in Jerusalem, the RE/MAX Vision office has
seen both the ups and downs of the market...
terrorism in 1998, the inifada in 2001, and the
European economic crisis in 2004. Each type
of market presented its own challenges. The
key is to identify the opportunities offered in
each market and adapt investment strategies to
maximize those opportunities.
We’re enjoying the combination of strong
demand exceeding supply and affordable
mortgage financing. A combination like that
is hard to derail. When added to the unique
character of Jerusalem and its broad appeal to
members of all the major faiths, we don’t see any
factors at the present time that will change the
nature of the existing market.
Even the efforts of governmental forces to “cool
down” the real estate market have had relatively
little impact. While the pace of rising prices has
slowed throughout most of the country, there
are still areas, including Jerusalem, that have
remained immune to those efforts. One example
of such efforts is a restriction placed on the
amount of financing available for the purchase
of an investment property that is not the buyer’s
primary residence. A similar restriction went
into effect on January 1 for foreign (non-Israeli)
investors.
Another effort by the Bank of Israel to cool
down the real estate market was to raise bank
reserve requirements for higher loan-to-value
mortgages. Theoretically, this measure was
16
April 2014
intended to reduce investor demand by making
it necessary for each buyer taking a 70% loan to
pay a higher interest rate on the mortgage loan
(a result of the lending bank having to set aside
more non-income producing reserves against
such a loan). This was supposed to dampen
investor demand because the investor would
have to put up more personal capital for each
purchase, thereby reducing his/her leverage
to buy multiple properties. The real victims,
however, are the young couples and families
trying to buy their first home. They are the
ones who have the most difficulty raising the
additional capital needed to take a less expensive
mortgage loan.
So with all the efforts to cool down the
market and bring down real estate prices, why
is the Jerusalem real estate market still rising?
Jerusalem is a unique market. Unlike other cities
in Israel, Jerusalem has a spiritual element that
draws foreign buyers from all over the world.
Many foreign buyers feel that owning a home in
Jerusalem connects them to their ancestors, their
history and their roots, even though they do not
intend to live in Jerusalem year round. Other
European buyers are buying in Jerusalem to have
a “haven” in case the storm of anti-Semitism in
Europe worsens and they feel the need to flee
for their safety. Whatever the motivation may
be, the demand will always be high; therefore,
property values will continue to increase. The
shortage of available land to build in the central
neighborhoods of Jerusalem perpetuates the
lack of new housing available and means that
the demand will always outweigh supply.
Investors have also been realizing the benefits
of buying property in Jerusalem. Although
they are aware that prices are high in the more
central and well-established neighborhoods
of Jerusalem, the savvy investors have found
bargains in the peripheral neighborhoods such
as Armon Hanatziv, French Hill and Gilo. With
a high demand for rentals from young couples
who cannot afford to buy, or students who need
temporary housing, an investor can realize as
much as a 9-10% return on investment (ROI)
on short-term (vacation) leasing or 4-5% ROI
on long-term rentals. Combining that with an
appreciation value of up to another 5% - 10%
per year, investors can realize a nice profit on
their investment.
Small three-room (approximately 65 square
meters) apartments in the peripheral areas range
from NIS 1,000,000 to NIS 1,200,000. With a
30% down payment and a 70% mortgage, an
investor can leverage the investment and use the
rental income to pay the mortgage.
Property in Jerusalem is always a good
investment because of the basic economic fact
that demand in Jerusalem always exceeds supply.
Obviously, as in any market, there are highs and
lows; but over a period of five years or more, one
can expect a solid capital growth while enjoying
a reasonably high nominal rental return.
In addition, many investors like the fact that
they own a property in Jerusalem that may be
used by themselves or family members in the
future or as a holiday home.
Those who have waited on the fence for the
bubble to burst have been disappointed. Those
who have jumped into the market in the last few
years have seen the benefits and appreciation
of their properties. The Jerusalem real estate
market is strong, and there are no signs that it
will weaken. So jump in and get your feet wet
and see why all that glitters really is golden.
The writer is the owner of the RE/MAX Vision
office in Jerusalem, with 26 agents covering all the
Jerusalem neighborhoods.
A house before demolition
(Adi Benzaken)
Upward
and onward
By James Harris
T
he term “raze and build” may have
menacing undertones, but many believe
it is the answer to some of Israel’s most
pressing real estate problems. Real estate
prices are sky high, and one of the reasons is that
this is a small and crowded country, where land
for building purposes is at a premium.
This shortage of land is especially true of the
established cities in the center of the country,
especially Jerusalem and Tel Aviv and the satellite
towns such as Ramat Gan and Givatayim.
In these places, land for building purposes
has practically run out. And since demand in
these places is high and supply of building land is
nonexistent, demand constantly outstrips supply.
This is a perennial problem here, and the only
18
April 2014
way to resolve it, or at least to partially resolve it,
is urban renewal.
This means tearing down old residential
buildings with a small number of apartments and,
in their place, build high-rise buildings with a
large number of apartments or to utilize the roofs
of existing buildings to add additional floors.
This type of urban renewal is gaining
momentum.
The first is called pinui binui, or “vacate and
build.” This means persuading the residents of a
building to accept a larger apartment in the new
building that will be constructed in its place.
The second option is called Tama 38, or
Urban Plan 38. It was put in motion as a
means to strengthen buildings in the event of
an earthquake. Developers who undertake to
strengthen buildings to make them withstand
an earthquake are authorized by the relevant
authorities to add a maximum of two and a half
stories to the buildings.
Although the process is gaining momentum,
many believe it is too slow and that more
legislation and less bureaucracy are required.
According to a stuady by the Israel Builders
Association, the potential is great. The study
reveals that if the process were implemented
in full, it would be possible to add one million
residential units to the existing stock of housing
over the next 10 years. By implementing the full
potential of Tama 38, it will be possible to add
240,000 apartments in the country as a whole.
And by implementing the pinui binui process,
another 760,000 could be added.
These are impressive figures, as it would mean
increasing the existing stock of housing by
approximately 40 percent.
In the Tel Aviv and surrounding area, which in
many ways is the bottleneck of the local real estate
industry, is it is possible according to the study
to increase the stock of housing by half a million
residential units. According to the study, in the
Tel Aviv area there are approximately 15,000 older
buildings that could be torn down and built anew,
adding approximately 380,000 new residential
units. Another 30,000 buildings are suitable
for Tama 38, which would add another 120,000
housing units.
In pinui binui projects, for every old apartment
torn down, an average of four can be added.
Tama 38 adds on average eight more apartments
to existing residential buildings. In this process,
the addition is net, since no apartments are
eliminated in the process.
The study of the Economic Department of the
Israel Builders Association is based on analyses
of all residential buildings built in Israel after
1980 to verify which are suitable for pinui binui
and which for Tama 38. The study focuses on Tel
Aviv and the surrounding area, but there is great
potential in the metropolitan areas of Jerusalem,
Haifa and Beersheba.
In Jerusalem, it would be possible to add
140,000 new residential units in the next decade
— that is, 100,000 through pinui binui and 40,000
through Tama 38.
In Haifa, the potential is an additional 140,000
residential units, of which 115,000 would be built
through the pinui binui process and an additional
25,000 through Tama 38.
In the Beersheba metropolitan area, 185,000
residential units can be added to the existing
stock, of which 140,000 would be built through
pinui binui and 45,000 through Tama 38.
Ruti Hershkovic the manger and proprietor
of the "Bar-Hershkovic Architects and town
planners", told real estate "Urban renewal is
practically the only way to solve the shortage
of housing in the historic centers they will
rejuvenate the historic centers that are in a sorry
state of decay and they will help as get rid of many
slum areas. The Israel Land Administration does
not have the reserves of land necessary to build
housing in the central areas of the country, where
demand is greatest. To do so, land must be made
available that is used for other purposes, such as
agriculture. The urban renewal program [pinui
binui and Tama 38] is the ideal way to increase
the stock of housing without further harming the
environment by making use of agricultural land
for building purposes. From my office we have a
bird’s eye view of Tel Aviv, and you see a flat city
of low-rise buildings. We need to raze as much of
these as possible and build high-rise apartment
blocks. That will increase the stock of apartments
in the Tel Aviv metropolitan area, create more
apartments and ease the upward pressure on
prices,” .
20
April 2014
New construction in Givatayim
(Adi Benzaken)
Overcoming obstacles
The urban renewal program is probably one of the only ways to alleviate the shortage
of housing in the large cities in the Dan Urban area. Yet the program is being impeded by
obstacles that are slowing down the process.
Guy Farbman is a lawyer who specializes in real estate in general and urban renewal
in particular. In a talk with The Jerusalem Post, he says, ”There have been new decrees
that make the process more lucrative, such as the third amendment to the Tama Act,
which allows building two and a half extra floors, as opposed to only one before. This
way, developers can build a penthouse on the top floor and use half of the top floor as
open terrace. Under the new regulations, it is now necessary to obtain the agreement
of 80 percent of the owners of any apartment building to allow a Tama 38/2 project of
strengthening an existing building and adding more floors. In addition, there is more
public awareness regarding the benefits of the urban renewal programs, and developers
are more experienced in executing urban renewal projects.”
Nevertheless, he says, “Major obstacles remain. It is very difficult for developers to
obtain financing for their urban renewal projects. We also need fiscal incentives such as
more supportive tax regulations.”
Minister Bennett in conference
(Courtesy Ministry of the Economy)
E
An inside look
at the local
economy
conomy Minister Naftali Bennett has the
distinction of being the only head of the
Economy Ministry who has had practical
experience in running an industrial
enterprise. He founded a successful start-up
company called Cyota that developed anti-fraud
technology, which was subsequently sold for
$145 million. His appointment to the Economy
Ministry (formerly called the Ministry of
Industry, Trade and Labor) was warmly received
by members of the business sector, who were
well aware of his commercial track record.
As a successful businessman, Bennett
believes in a free market economy in which
private enterprise is the engine of growth and
individuals can give full rein to their skills and
potential. While being a strong proponent of
the free market concept, Bennett is also in favor
of a tempered version where the less fortunate
sectors of the population receive generous
government assistance.
At present, the local economy appears to be
losing some of its dynamic impetus. Recent
figures published by the Central Bureau of
Statistics indicate that the while the economy is
still growing, it is growing more slowly than in
previous years. But the economy minister is not
worried.
"The figures show a slower rate of growth, but
the causes are not home grown,” says Bennett.
“They are caused by the fall in exports, which
are caused by the economic downturn in Europe
and, to a lesser extent, the US. There seems to
be an improvement in the economies of Europe
and the US, and this will ensure that our exports
will recover. Despite the very strong shekel and
the current state of global trade, exports are
holding their own. This means that we have good
products at competitive prices, and demand
for our products is there. When the economy
recovers and demand increases, demand for our
products will increase as well,” he says.
“I want to add that the science-oriented
industry is the growth engine of our economy.
The figures published for the last quarter of 2013
show that this sector of our economy is very
strong, very dynamic," he says.
But the science-oriented industry is having
22
April 2014
By Juan de la Roca
difficulties. The chief scientist of the Economy
Ministry says that his budget is insufficient.
And the VC funds are having difficulty raising
money for start-ups, which are the grassroots of
the science-oriented industry. Are you worried?
No, I am not. There is no shortage of money
to finance start-ups. Any start-up with a good
technology and a potential market will have no
problem finding funding. Israel has made a name
for itself for the quality of its technologies and its
marvelous ability to develop new technologies.
We are an innovation powerhouse, and overseas
investors are investing large sums of money in
the local science-oriented industry. I make it a
point to attract foreign investors from countries
such as China and India. China has vast sums
of money to invest overseas, and I am happy to
say that some of that money is finding its way
to Israel in general and the science-oriented
industry in particular.
In the science-oriented industry, there seems
to be a lack of vision because start-ups are sold as
quickly as possible. There seems to be no desire
to wait until a small start-up has developed
into a large, strong company. We seem to have
evolved from a start-up nation to an exit nation.
Israel is very good at innovation and
entrepreneurship and less good at creating large
companies, such as Checkpoint. The scienceoriented industry in this country is revolving
in nature. Entrepreneurs establish a company,
sell it at some point, and with the money
from the sale they establish another start-up
company. Some of the employees who gained
experience working in that particular start-up
set up their own start-ups. This is a very positive
development.
There are other cases where a start-up was
sold overseas, and the new owners retained
some of their operations in Israel. My former
company is a good example. When we sold our
company overseas, we had 120 employees in
Israel. Now that same company, though foreign
owned, employs 400 people. So as you can see,
that revolving process has its advantages.
But it also has its disadvantages. Some claim
that it deepens the social divide because a large
science- oriented company such as Teva or Nice
has industrial facilities, but a start-up company
does not. An industrial company can employ
people with low levels of education, while a startup company can employ only highly educated
personnel, such as engineers and programmers.
That is true. But when a start-up industry
develops, it creates other circles of employment
such as restaurants, catering and cleaning.
The issue of employment is something I am
deeply involved in because is undergoing major
changes.
With regard to the connection between the
science-oriented industry and employment
of the less educated, I believe it has a big role
to play. Not everyone can become an engineer
or a programmer; but with our innovative
abilities, we can develop technologies that
can help low-tech companies, such as textile
or food manufacturers, improve and simplify
their production lines, making the production
process less expensive and more efficient and
make products of a higher quality. This way, the
products can compete better in world markets,
and we will have efficient and competitive
low-tech production facilities that can provide
employment to a wider sector of the workforce.
These factories, equipped as they will be with
the latest equipment, will be able to produce
high-quality goods that will fetch good prices,
increase the profitability of the companies, and
enable them to pay their employees a good
salary.
The whole issue of employment is critical
for the well-being of the state. Long-term
GDP growth is closely connected to our ability
to expand the workforce to include Arab
women and haredi men, who are very poorly
represented in the labor force. We are trying
hard to remedy this.
The unemployment rate in Israel is very low:
5.8 percent of the registered labor force. Despite
this low level, the employment environment
has been undergoing dramatic changes in the
past several years. Thirty years ago, it was not
uncommon for a young man or woman to find
employment with a production company, a
service company, a bank or hotel and expect to
be employed for the rest of his or her working
life. This is now a thing of the past. The fast
tempo of change in the business world has
affected job security. There is no job stability
for the individual, and that is something we
must all take into account. The rapid level of
technological change also means that a person’s
trade or expertise may become obsolete at any
moment, which means that the potential of
being dismissed is ever-present.
In Israel, we have the problem of low salaries,
According to the Bank of Israel’s 2013 state of the
economy survey, 25% of those employed receive
the minimum salary specified by law or less. We
have now improved the employment terms of
one of the weakest groups of employees, cleaners
who work for subcontractual employment
companies.
As I said, we are deeply involved in including
haredi men and Arab women in the workforce.
We know they have cultural issues that prevent
them from working; consequently, we have
created a number of special employment centers
that will help these people find suitable jobs.
We have a program called the Voucher Plan
whereby the Economy Ministry issues vouchers
for hundreds of vocational schools that will
enable haredi men to acquire a profession. We
also have aid and government programs for
Arab women to encourage more of them to
enter the workforce. The goal is to double their
employment rate from 25% to 50% in five years.
Increasing the number of employed will
decrease poverty, and that in itself is a good
thing. I consider any steps taken to decrease
the socioeconomic divide important because
inequality creates instability; and in the
geopolitical situation in which Israel finds itself,
that is something we cannot afford.
If the employment environment is unstable,
it means that many will find themselves
unemployed, with skills that are obsolete. How
do you solve this problem?
Such people will have to take a course in a
profession that is adapted to their abilities and
level of education. Moreover, it is in demand.
This can happen a few times during one’s
working life, so one should be prepared for such
a thing to happen. These people could also take
the initiative and start a business of their own.
At the ministry, we are very supportive of newly
unemployed people’s establishing their own
enterprises. We have set up a special fund of
NIS 3 billion for those who want to set up small
businesses of their own, which are administered
by commercial banks. Those who want to set up a
business submit a business plan to the Economy
Ministry. To date, 50% of the applicants have
been approved. Once a person is approved, he or
she can go the relevant bank and obtain a loan
that bears an 85% government guarantee.
We are receiving applications all the time.
When this fund is depleted, we will set up
another one. There will always be money to
finance the creation of small businesses.
This is very popular with Arab women,
who can create a business and work from
home. It is also very suitable for new olim
with entrepreneurial skills. Setting up a small
business has its risks, but it also has its rewards.
Your program is very free market oriented,
but Israel is not a free market economy because
there is no free-market competition.
It is not only a question of free-market
competition; it is also a question government
regulation. We are working hard to remedy the
issues of an excessive regulatory regime and the
lack of free-market competition. In 2013 we
managed to stop further regulatory legislation,
and this year we intend to revoke some of those
regulations and liberate business from some of
the more irksome regulations.
With regard to competition, we are working
to extricate the economy from the stranglehold
of over-centralization and the lack of true
competition. We have broken the monopoly
of Nesher in the cement market and are in the
process decentralizing the food market to make
it much more competitive. When we compare
prices in February 2013 with prices in February
2014, we can see that prices are decreasing.
April 2014
23
Before and after
(Courtesy)
Tama 38:
Forewarned is
forearmed
By James Harris
D
id you know that in 1068 CE, 15,000 people
were killed in an earthquake that shook
the town of Ramla? Are you aware that
in 1759, tens of thousands of people were
killed in an area that is now in northern Israel,
along the Syrian border? And do you know in
1837, Safed was destroyed by a major earthquake?
These periodical earthquakes are considered
normal in our part of the world because Israel sits
astride the East African geological rift known as
the Afro-Asian Rift.
The government of Israel is aware of the fact
that at some point in the future, we can expect
an earthquake. A study commissioned by the
Housing Ministry found that many of the houses
in Israel would not be able to withstand an
earthquake. Consequently, much loss of life and
property would be incurred.
To try to avert such a catastrophe, the
government initiated Tama 38 (the National
Urban Plan). The idea of the plan is to reinforce
small buildings and add one or two more floors.
The reconstruction of buildings would be
financed by the sale of the added apartments.
Most of the buildings that require reinforcing are
old condominiums of sorts. The owners of the
apartments do not usually have the money to pay
for the work involved, so the only way to make
Tama 38 happen was by creating a framework
24
April 2014
in which the private sector would undertake the
work for a profit.
The program started badly. The developers did
not know how to tackle the issue, the municipal
governments were not very supportive, and
financing from the banking sector was hard to
come by.
However, with time, attitudes changed. Tama
38 was adapted to increase the profitability of
developers, and the banks are now getting into the
act, such as the Bank of Jerusalem. Consequently,
the number of companies implementing Tama 38
is growing daily.
The work of strengthening existing buildings
and adding one or two floors is generally
undertaken by small contactors because the scale
of the actual construction work is small.
Omer Patran is the CEO of Tzock Eitan, a
company that is very active in Tama 38 projects.
He says, "The actual construction work involved
is relatively small. Strengthening the existing
structure and adding one or two floors to an
existing two- or three-story structure involves
much less work than constructing an eight- or
nine-story building. However, the administrative
work is much more complicated. One must find
a suitable building with potential building rights
to make the project feasible. But that is the easy
part. The most difficult part is persuading the
apartment owners to agree to the project."
To make a project feasible, it must have benefits
for the owners, the contractor entrepreneur and
the local authority. The residents will usually be
getting an extra room, a much upgraded lobby
and façade and an elevator. The developer must
be assured of making a profit. That is, he must
be certain that the income from selling the
apartments on the two added floors will yield a
profit. And the municipality is an interested party,
as it authorizes adding the new floors. The project
must prove advantageous, such as the impact on
infrastructure such as transportation and added
income from municipal taxes.
However, there is a certain conflict in regard
to Tama 38 projects. Many of the buildings that
require structural strengthening are in the historic
centers of the large cities. The infrastructure of
these buildings is old and unstable, and adding
new apartments could create problems.
Yael Postelnicu is a lawyer with Barone &
Co., a legal firm with wide experience in Tama
38 projects. "Implementing Tama 38 projects is
no easy matter. But things are changing because
awareness about the positive aspects of the
projects is increasing, and it is now easier than
before to get the proprietors to agree to implement
it. And banks are more open to requests for
credit," she says.
MK Avishai Braverman
(Courtesy Office of MK Avishai Braverman)
Evolving from
‘start-up
nation’ to
‘exit nation’
By John Benzaquen
I
f one were to judge by what the political
economic leadership of this country is
telling us, the local economy is in excellent
shape. The macroeconomic figures are
excellent: low inflation at an annual 1.2 percent;
a low unemployment rate of 5.8%; and an
annual GDP growth of slightly less than 3%.
These are excellent figures, but there’s a catch.
Macroeconomic figures are averages. And
averages have a tendency to hide the true picture.
In Israel, what they hide are glaring inequalities
that in the long term can be very dangerous to
the stability of the state.
On the BBC’s TV comedy series Yes, Prime
Minister, the fictitious Sir Humphrey Appleby,
the cabinet secretary and consequently the
highest-ranking civil servant, says of politicians,
“They are only worried about getting over
the evening’s voting session in the House
of Commons.” What he means is that in a
democratic system of government based on the
whims of the electorate, it is not always easy
to formulate a policy that will have long-term
benefits.
Prof. Avishai Braverman is a prominent
economist known worldwide. He is an MK and
chairman of the Knesset’s Economic Committee.
He is also the only professor in the Knesset and
is deeply involved in economic affairs.
In an interview with The Jerusalem Post,
Braverman says, “The current economic policy
is flawed mainly because it has created many
inequalities. Israel is one of the most unequal
socioeconomic societies in the Western world,
and these inequalities will have long-term, farreaching consequences. No society, let alone
a free society, can survive large inequalities. At
28
April 2014
some point, they will explode.”
He adds, “Most revolutions are caused by a
deep divide between the haves and the havenots. I am sorry to say that in this country we
have a small minority that is living well very well,
while the majority is barely making ends meet.
The salaries they get are insufficient, the cost of
living is sky high, and the cost of housing has
reached unacceptable levels.”
You were a proponent of a free market
economy. Have you changed your mind?
No, I still believe that a free market economy,
despite all its faults, is the best system. But
what we have at the moment in Israel is not a
free market economy. It is not free because the
system is flawed. We have a very centralized
economy. Such an economy is not free because
it cannot be competitive. There is no real
competition, and an economic system cannot
be called free if there is no competition.
Ours is a perverted free or capitalist system
in which the haves are getting richer and the
have-nots poorer. I realize that in every society
there are those that have more than others, but
what I object to is when these differences are
enormous and can have a destabilizing effect on
the economy.
In your opinion, what is causing the big
socioeconomic divide?
The government economic policy in general.
The whole economic system has created a
framework in which the benefits of a rise in
GDP are benefiting only a small minority, while
the majority is left out in the cold, as it were.
What I object to most specifically and what
I think is causing the most harm is the fact
that from a ‘start- up nation,’ we have become
an ‘exit nation.’ We still are an innovation
powerhouse, but our scientific talents are being
wasted because they are benefiting the few and
not the many.
We have developed a philosophy that I call
‘take the money and run.’ Entrepreneurs create a
start- up company and after they have developed
the technology, they sell it to the highest bidder.
In my opinion, that a very big mistake and is one
of the causes for the socioeconomic divide.
When these entrepreneurs sell their start- up
companies when they are still at the developing
stage or even at the end of that process, they are
denying the local economy the opportunity to
create an industrial company that will supply
jobs to a much wider segment of the workforce
than any start-up can.
The employees of a start-up consist mainly of
engineers, programmers, etc. They are highly
trained and talented people who, because of
their high level of education, come from a very
limited sector of the community. These start-ups
should become large and prosperous industrial
companies such as CheckPoint and Nice. They
began as simple start-ups and have now become
large multinationals that employ engineers and
programmers, as well as production personnel,
office workers, cleaning staff and drivers -- all
the staff that a large industrial concern usually
employs.
When a start-up is sold to a foreign buyer,
only the entrepreneur and a few others benefit.
But when a start-up becomes a large industrial
concern, the benefits are much more widely
spread.
Boston, Massachusetts
(Courtesy Pacific Holdings)
Investing in
US real estate
By Jason Blackshaw
I
nvesting in real estate in the Unites States
may sound dicey, but in these days of very
low yields on bank deposits and sluggish
stock markets, investing in US real estate
is an option that should be considered. Like
all investments, the pros and cons should be
weighed carefully; but when everything is taken
into account, the prospects look favorable.
Yuval Ziv, CEO of Pacific Holdings, a large
American company that specializes in investing
in real estate in the US, says, "In general terms,
investing in real estate is potentially very
rewarding. Despite high potential yields, I would
not recommend that Israelis do it on their own.
They should do it through a reputable company
that specializes in the field. In general, real
estate in the US is undervalued, but there are
areas such as parts of Ohio where prices are not
undervalues."
The reason for the current state of real estate in
the US is the sub prime crisis of 2008. This crisis,
which was the cause of the global economic
crisis, hit US real estate prices hard, and they
have not yet totally recovered. According to
estimates, average real estate prices across the
wide expanse of the US fell by about 60 percent.
That means that an apartment that sold for
$100,000 in 2007 had fallen to $40,000. Since
then, nationwide average real estate prices have
30
April 2014
risen by 40%. This means that the apartment
that sold for $100,000 in 2007 now costs $56,000,
only 56% of the price in 2007. Given that on the
eve of the burst of the sub prime bubble real
estate prices were overvalued, it means that on
a realistic basis, real estate prices are 30% to 35%
below their real value.
And indeed, in the real estate market, the
above average price range since the 2007 lows
have risen much faster than prices in lowrange real estate. Prices are still weighed down
by foreclosures. Banks are still seizing the
properties of those who are unable to meet their
mortgage payments. The number has fallen since
the first post- sub prime years, but the level of
foreclosures is still high. This means that supply
is high from a source that is very keen to sell.
Ziv explains, "The high number of
foreclosures means that there is no end of
bargains in real estate, and our company is
buying what it considers worthwhile purchases.
We buy properties, many of which require
refurbishment. We then upgrade the properties
and resell them at a profit to investors or to
people looking to buy a home.”
He adds, “We have formulated a program
that is very reassuring for investors. We sign
a comprehensive management agreement
(CMA) whereby we commit ourselves to give
the investors an annual 9% return on their
investment for four years, backed by a bank
guarantee. We usually sell our clients properties
that we own. This means that they buy a property
of which they are the sole owners."
The reason for these comprehensive
agreements is mainly for the benefit of the
Israeli clients of Pacific Holdings or, more to
the point, to allay their apprehensions. This is
understandable because in the past, many people
in this country had unfortunate experiences with
real estate investments in the US. There were
legal problems with proprietary rights, location
of the property and yields.
The CMA eliminates most, if not all, of
these problems. It guarantees an uninterrupted
monthly income, it ensures legal proprietary
rights, and it takes care of all the details and
bureaucracy of a real estate transaction in the
US.
Ziv believes that prices will continue to rise,
which means that a property in the US will
provide a yield much greater than a bank account
or a stock-oriented mutual fund.
At present there is a shortage of housing in
the USA . The sub prime crisis caused a fall in
housing starts but while the population has
continued to grow. Insufficient supply will most
surely drive up prices now and in the future.
Real Estate: Panel discussion
The ins and outs
of the industry
By John Benzaquen | Photos by Marc Israel Sellem
W
hen the new Israeli government
was sworn in last year, one of their
first commitments to the public
was a promise to bring down real
estate prices. However, they continue to rise.
According to figures released by the Central
Bureau of Statistics, real estate prices during the
past 12 months have risen by some five percent
and are continuing to rise.
In the last week of March, Finance Minister
Yair Lapid decided to cancel the VAT payments
for young couples of which at least one has
served in the IDF or in one of the alternative
national voluntary units. For his part, the
housing minister formulated a plan whereby the
land tenders of the government-owned Israel
Land Administration would be awarded to the
developer that committed himself to selling the
apartments to be built on that land at the lowest
price.
Most experts have criticized the VAT
exemptions as problematic, while there was not
much criticism of the plan to award the land
tender to those who offer to sell the housing at
the lowest price.
The real estate industry seems to be at a
crossroads of sorts. To help understand the state
of the market, The Jerusalem Post assembled a
panel of experts to discuss the issue.
The panel consisted of the following members:
Dror Feldman, head of the Mortgage Division
of the Mizrahi-Tefahot Bank
Roi Harosh, managing partner of Anglo Saxon
Tel Aviv
Amir Heller, deputy general manager of the
Builders Association
Stav Shaffir, MK, Israel Labor Party
Kamal Shajrawi, general manager of the SBI
Group
34
April 2014
Avi Turiski, joint general manager of Rotem
Shani Development and Investment
Nir Yehezkeli of the B. Yair Construction
company
Moderator: Juan de la Roca of The Jerusalem
Post
Panel, how would you describe the current
state of the real estate market and what influence
has government policy had on the real estate
industry?
Yehezkeli: I would say that the government
has had a negative influence because it has
introduced an element of instability. The plan to
exempt first-time buyers who have completed
their military service has introduced an element
of uncertainty that will have dire short-term
consequences. No one knows the exact details
of the plan because it is half-baked. It has to be
approved by the Knesset, and that takes time.
In the meantime, demand for housing will be
stalled because the public expects real estate
prices to fall. Consequently, many developers
will think twice before starting a new building
project.
Shajrawi: The way the government is dealing
with real estate prices is very unprofessional, and
I do not believe they are interested in bringing
prices down. High real estate prices mean high
government revenues and large profits for the
banking industry, which translates into higher
tax revenues. But even if they really wanted to
bring down prices, it is easier said than done.
Building costs make up a significant part of
the cost of an apartment.
The cost of building an average 100 square
meter apartment is at least NIS 900,000,
including labor, materials, etc. To this must be
added an extra NIS 200,000 for the cost of the
regulations enacted over the past five years.
Reducing real estate prices will be a very difficult,
if not impossible, situation.
The problem is not only the actual price of
real estate but also the affordability of housing to
the potential buyers. If one needs more than 130
monthly salaries to buy an apartment, it means
that salaries in relation to real estate prices are
too low. In Switzerland, for example, the average
price of an apartment is 60 monthly average
salaries because salaries are much higher than
here.
I believe that the most efficient way to reduce
building costs is by using industrial methods,
such as industrial production of modules in
plants far from the plot and putting them
together at the construction site.
Turiski: The government’s real estate policy is
dismal. The golden rule of economics is that the
only way to reduce prices is by increasing supply.
In this country, they are trying to lower prices by
artificially curbing demand. The Bank of Israel
is making it much more difficult for investors to
obtain a mortgage, and the Finance Ministry has
increased the purchase tax on those purchasing
real estate for investment purposes. This has
proven to be a failure because investors are still
buying real estate, and prices are still rising.
The decision to exempt certain categories of
first-time real estate buyers from VAT is a good
idea in itself, but the way it has been handled is
a disaster. It will cause a halt in demand because
no one knows who will finally be exempt.
Consequently, they have stopped buying.
This could have been avoided by adding a
single short clause to the ministerial decision
that whatever decision is adopted will be
retroactive to today. The way the decision was
made and how it was announced shows that the
Amir Heller
decision-making process at the highest echelons
of government leaves much to be desired.
Harosh: I agree with Avi that we have a
problem with government decisions. They
have been announcing new regulations that no
one fully understands, and they are constantly
causing confusion in the market. These new
regulations, together with the steps taken to
restrict mortgages to investors of no more than
50% of the value of the property, were meant to
curb demand by decreasing investor demand.
But it has failed. Investor demand is increasing.
According to recent figures published by the
Finance Ministry, investor demand in the last
quarter of 2013 rose by 40%.
If the government really wants to bring down
prices, they should concern themselves with
increasing supply by increasing the supply of
land for building purposes. The government,
through the Israel Land Administration, owns
more than 90% of the total land available in
Israel. This means that the government has the
land resources.
Furthermore, the authorization process is
horrendous. There is no reason why a simple
building permit should take 30 months. This is
also affecting the supply of housing.
Feldman: I believe that government policy
is nonexistent. During most of last year, the
government left most of the work to the Bank of
Israel, which tried to curb investment demand
by regulating mortgages. The monthly mortgage
figures of NIS 4 billion prove that their policy
is not effective because during the first quarter
of 2014 and 2013, mortgages have increased in
relation to 2012. The average mortgage in real
terms has increased to NIS 640,000 compared to
half that amount 10 years ago.
Stav Shaffir
If the government wants to help the public,
especially young couples, to buy a home, it should
increase the assistance it gives them. In the past
10 years, the amount of financial assistance in
the form of soft loans has not changed, despite
the fact that prices have nearly doubled.
The term ‘soft loan’ is a joke because the
government charged an annual interest rate of
4%, which was the reason there were no takers.
Since last year, the interest rate has been lowered
to an annual 3%. But even this is not sufficient.
The government should reintroduce grants
and truly soft loans for those purchasing real
estate in some peripheral areas. That is the best
way, perhaps the only way, the ‘underprivileged’
will be able to buy housing.
Heller: I think that the real estate policy of the
government as evidenced by the ministerial
decisions is sound. The problem is that they
are not implemented. I believe that the fault
lies in the inability of the political leadership
to implement these measures through the civil
servants in the ministries.
I am referring to the reforms in the
planning and authorization process in the
Housing Cabinet in which all the ministers
whose ministries have a bearing on real estate
participate, such as the minister of finance, of
housing, the environment, of energy and water
who is in charge of the infrastructure. They have
made the right decisions in the matter of credits
for the developers, on urban renewal and on the
shortage of labor. But sadly, these decisions have
not been implemented.
Up until last year, a construction overseer
could only receive a work permit if he was
trained for seven years, which is the time needed
to train a medical doctor. Now, after a massive
campaign on our part, that time period has been
Nir Yehezkeli
reduced to five years. That decision at least has
been implemented.
The way the VAT exemption has been has
been handled will bring about a rise in prices.
The public will stop buying for a few months. A
canned demand situation will be created. It will
then burst, demand will soar, and prices will rise
because supply is insufficient.
During the past two years, housing starts
have more or less amounted to the number of
households created each year. Supply you might
say is balanced with demand. But this is very far
from the case. According to government figures,
a low level of housing starts in previous years
has created a shortfall of 115,000 dwellings. This
is equal to three times the dwellings in Ramat
Gan, one of the country’s five largest cities. If we
want to overcome this shortfall, we need 50,000
to 60,000 annual housing starts for the next 10
years.
Shaffir: The government must be involved in the
real estate market because it is the only way that
young people can hope to acquire an apartment.
At present, it is impossible for the majority
of young people to buy even the cheapest
apartments available. And it is almost impossible
to find small apartments because most of those
built are relatively large four-, five- and six-room
apartments. Consequently, more and more
people are resorting to rent. As it stands, more
than two million people -- 25% of the population
-- live in rented accommodation.
And this is a free-for-all jungle like
environment. We are the only country in the
Western world where the rental market is not
regulated. I myself live in a rented apartment in
Tel Aviv. Since I completed my national service
eight years ago, I have had to move every year.
I am introducing a bill in the Knesset to
April 2014
35
Dror Feldman
regulate the more extreme abuses of the system.
In my bill, I propose long-term leases in contrast
to the short-term annual leases that prevail
today. This way, the tenants will have some
security of tenure because they will not be forced
to move every year. In some ways, a long-term
lease can be a sort of alternative for those who
cannot afford to buy. My bill will also regulate
the financial arrangements between the landlord
and the tenant to prevent abuses.
I strongly believe that the government
should involve itself in the process of supplying
affordable housing, such as subsidizing
contractors by supplying housing that can be
rented for a total of 30% of the average disposable
income in this country.
Mr. Shajrawi, you said it will be difficult to
lower prices because building costs are high.
What can be done to remedy this problem?
Perhaps decrease the cost of raw materials?
Shajrawi: The cost of raw materials, such
as cement and iron, is determined by global
market forces beyond our control. The only
mobile element is labor. And since there is a
constant shortage of labor, salaries are rising
constantly. The only way to solve this problem
is by increasing the number of Israelis employed
in construction work or increasing the foreign
workforce, easing restrictions on the Palestinian
labor force. Their output is low because to get
to work, they have to get up before dawn, and
in most cases, cross about four checkpoints. By
the time they get to work, they are tired and
frustrated; and by about 3:30 p.m., they have to
start on their way back home.
A better means to lower construction cost is
to encourage the use of industrial construction
techniques.
Mr. Turiski, your company is heavily involved
in urban renewal projects – i.e., tearing down
old dilapidated buildings and putting up
large modern buildings in their stead. This
program can solve the shortage of housing in
36
April 2014
Kamal Shajrawi
the old established towns. It is not progressing
satisfactorily? What are the major stumbling
blocks?
Turiski: The main problem is that if even one
apartment owner in the building refuses to be
part of the project, the whole thing is stalled or
even canceled. In contrast to other countries,
there are no clear-cut regulations on how to
handle this problem. In my opinion, that is the
major stumbling block.
Mr. Heller, has the Builders Association any
suggestions regarding this issue?
Heller: Urban renewal is a fantastic way to
increase supply in the most congested areas. But
like Avi said, one refusal can jeopardize the whole
project either through greed or apprehension,
fear of the unknown.
We suggest a legal recourse in such a case.
The proprietors can purchase the rights of the
refuser so that he can buy another apartment.
This way, those who are afraid of moving to
rented accommodation for the length of the
urban renewal process can be reassured. This
may require legislation, but it is the best way to
overcome one of the main bottlenecks of that
process.
In the current situation, especially with the
VAT exemption, what would you advise a friend
who wanted to know whether or not to buy an
apartment?
Harosh: I would be hard-pressed to find an
answer. Under the circumstances and because
of the uncertainty, I would suggest waiting for
the situation to clear up. But the local real estate
market behaves in mysterious ways. Two years
ago, when all the signs indicated that prices
would fall, I advised my friends to wait. But the
market disregarded ‘expert advice,’ and prices
rose. Consequently, in these turbulent times, I
would say, ‘I don’t know.’
Mr. Feldman, the local economy is softening.
Has that been reflected in the demand for
Avi Turiski
mortgages and in arrears?
Feldman: No. Demand for mortgages is
increasing, and the amount of arrears is constant
and small. People in this country make a big
effort to meet mortgage payments. When people
are in financial difficulties, mortgage payments
are given priority status. In addition, we at
Mizrahi-Tefahot, and I believe it is the same
in other banks, make a big effort to help the
mortgage holder. For example, we temporarily
freeze payments of the capital until times get
better or renegotiate the mortgage, such as
allowing a longer repayment period.
Ms. Shaffir, if the Labor Party won in the next
election and you were named housing minister,
what would you do?
Shaffir: With the exception of regulating the
rental market, which I have already gone into,
I would make it a priority to supply affordable
housing. I believe that in contrast to the older
generation who dreamt of a house and a garden
in the suburbs, today’s generation is more urban
oriented.
We have to create other metropolitan centers
besides Tel Aviv. We should have many other
urban centers with affordable housing subsidized
by the government. This is possible even in the
center in Tel Aviv because the land that will
become available when the military bases in the
Tel Aviv metropolitan areas are moved south can
be used to build affordable housing.
With regard to urban centers outside Tel Aviv,
they should have the necessary infrastructure
such as transportation, education, culture
and, above all, employment because building
affordable housing in the middle of nowhere will
not resolve anything.
Mr. Yehezkeli, what will happen until the end
of the year?
Yehezkeli: A lot depends on the VAT exemption.
But I doubt that prices will fall or even stabilize
by the year’s end. I believe that they may rise less
than the 5% we saw in 2013, but they will rise.
Mobile market
I
By James Harris
Attention,
smartphones
calling
n the last week of January, Apple published
its financial results for 2013. There was a
record income of $57.6 billion, a rise in
revenue of nearly six percent compared to
2012, and record sales in the number of products
sold. Despite such impressive figures, the
markets were not pleased due to the perception
that Apple’s proprietary operating system, IOS,
is losing ground to Google’s public domain
operating system, Android.
Apple is a technological giant, but in the
smartphone arena it is a lone rider. Only Apple
can make use of IOS, while countless developers
and manufacturers can use Android.
Technology is a battle of wits and of mind
power. There is no doubt that Apple employs
hundreds of talented developers, but it is a
proprietary and closed entity. A very large closed
entity but a closed one, nonetheless.
Consequently, Apple is losing global world
share. In 2012 it held 19% of the world’s
smartphone market. By 2013, it had fallen to 15%.
After the 2013 results were published, analyst
Van Baker from the Gartner Technological
research institute commented, “The era of the
smartphone has reached its peak. The market is
based on customers who upgrade their products
and not on those buying a smartphone for the
first time.”
Others believe that unless Apple reinvents
itself again by developing a new hot product, it
will inevitably continue to decline.
But such statements ignore the strength of the
smartphone market.
Irrespective of whether demand is from
upgraders or first-time users, demand for
smartphones is robust. In 2013, just over one
billion smartphones were sold worldwide
compared to 725 million in 2012, an increase
of 38%. These figures show that this is still a
tremendous market, and a company with a 15%
share of this multibillion-dollar market cannot be
considered weak.
But what is happening in the global
smartphone market and, consequently, in Israel?
Accel Telecom is the exclusive importer of
French-Chinese smartphone manufacturer
38
April 2014
Alcatel, which has become a major player in the
Israeli smartphone market. Accel CEO Marc
Seelenfreund told The Jerusalem Post, “The
global smartphone market is highly competitive
and dynamic. Only a few years back, companies
like Motorola, Nokia and Blackberry dominated
the market. Today, the landscape has completely
changed, with Samsung and Apple at the
forefront. Although Apple is clearly an extremely strong company with great devices, it seems
to have hit a wall in the smartphone market
because it is competing with a very large number
of developers and manufacturers of numerous
smartphone devices and thousands of software
applications that use the Android open operating
system. Since Android offers a large range of
handsets manufactured by multiple vendors and
at various price levels, combined with a richer
software and application offering, it seems that
in this war of the smartphones, it is the Android
handsets that seem to have the upper hand,” he
says.
Ayelet Serfaty-Rozen is the CEO of iDigital,
one of the official Apple importers in Israel. She
agrees that the smartphone market is dominated
by the competition between the Android and the
IOS smartphones but disagrees with those who
say that Apple is losing ground.
“Demand for Apple products is stable. The
Apple brand iPhone is very strong, and that is
a terrific selling point,” she says. “It is true that
we operate in a very dynamic and competitive
market, but whoever implies that Apple is not up
to competing with the technological advances in
the market is forgetting that Apple is one of the
most innovative technological companies in the
world, which has always astounded the market
with its innovative technological developments.”
Indeed, when discussing the smartphone
market, one must bear in mind that as with all
cutting-edge technological products, the key to
success is in new and advanced developments.
Despite the seasoned development team at Apple,
the countless number of Android developers
around the globe at multiple manufacturers
gives it a big advantage when developing new
smartphone technologies. It is not only vis a
vis Apple that the small developers are gaining
ground. They are also gaining ground against
other large developers. In 2012, small developers
held 35% of the smartphone market, while in
2013 they held just over 40%.
The same holds true in Israel. In the last
quarter of 2013, Samsung held 33% of the market
compared to 40% in the first half of 2012. Apple
held second place with a 24.5% market share
compared to 34% in the first half of 2012. Alcatel
was in third place, surprising the market with a
13.4% market share compared to a 4% market
share in the first half of 2012. Alcatel’s success can be explained by a very
efficient and focused marketing operation, as well
as an attractive value for money approach, which
Israelis love. These technologically advanced
smartphone devices sell for NIS 1,300 to NIS
1,700, with most of the important functions of
the much more expensive Apple or Samsung
counterparts. Alcatel sells its smartphones at all
the cellular providers, as well as at major retail
chains in Israel, which make it a real threat to the
larger handset manufacturers.
Based on its knowledge of cellular hardware
and the Android operating system, Accel
developed Voyager, the first car-based
smartphone, adapted to the needs of drivers of
private cars, commercial vehicles and trucks.
Accel sells this device at Orange and has started
sales internationally with a multibillion-dollar
market potential. This seems to be the first Israeli
company to commercially launch a smartphone,
which again shows the great potential in
partnering with Android. But as with all market
products, Accel will have to continue developing
more advanced technologies or decline in a
market that shows no mercy.
And the smartphone market is tough in the
extreme. Paul Lucifer, an ex officio Blackberry
executive, told The Jerusalem Post, “Complacency
is the greatest danger to smartphone companies,
regardless of their size. Blackberry and Nokia
were market leaders, giants in their field, but
complacency caused their ruin. They did not
react to such innovations as the iPhone and the
touch pad, and they were brought down.”
Gadi Tirosh
(Courtesy JVC)
JVC at the forefront
of the science-orien
By Juan de la Roca
S
ince the 1990s, hi-tech, or the scienceoriented industry, has been the backbone
of the Israeli economy. It has amounted
to more than 40 percent of the overall
exports of goods. The science-oriented industry
has created the trade surpluses, where before
we had chronic deficits. And it has been largely
responsible for the high GDP growth rates in
the past decade.
The science-oriented industry in this
country has undergone big changes -- as
well it should. It is a well-known maxim in
industry that if one does not go forward, one
goes declines. This goes double for the scienceoriented industry. The tempo of change is
tremendous, and a company that does not
advance quickly enough is simply annihilated.
Nokia and Blackberry are two such examples.
They did not adapt quickly enough, and the
two giants in their field were brought down
and are now mere shadows of their former
supremacy. These two companies managed to
survive, but many others did not.
So it is a good thing that the science-oriented
industry is Israel is changing and adapting to
world trends because that is the only way to
40
April 2014
survive. Things are changing, from the way
new start-ups are created to the way they are
financed. In essence, the way start-ups are
created has not changed; what has changed is
the substance of these start-ups. Today, Israel
excels in cyber, mobile, especially mediaoriented technologies and medical devices. The
way these start-ups, and indeed the industry, is
financed has undergone dramatic changes. But
while the changes in substance were caused by
the changes in the trends in technology, the
changes in the way the industry is financed is
caused by the trends in the financial markets.
Money is less plentiful today because, despite
the titanic dollar overhang that should make
investment money easily available, this is not
exactly the case. The money markets have not
yet completely recovered from the various crises
that have rocked the markets since the burst of
the dot.com bubble in the early 2000s and the
sub prime mortgage crisis. Consequently, capital
tends to find shelter in low-yield sovereign
bonds instead of in potentially high-yielding
risky ventures. And science-oriented industries
are high-risk investments.
In Israel, the industry has adapted to the
changes, being dictated by consumers, the
investors, VC funds and others.
One of the Israeli companies that have
adapted to the changing trends is the veteran
VC fund Jerusalem Venture Capital (JVC). It is
one of Israel’s largest and most successful funds.
It has nearly $1 billion under management in
six funds, one of which invests in later stage
investments in its own portfolio companies. In
addition, JVC has two incubators that operate
under the government incubator program. One
is in Beersheba, specializing in cyber security,
and the other is in Jerusalem. Last year, the VC
research company Preqin listed JVC as one of
the 10 leading VC funds in the world. JVC is one
of two non-American VC funds that made it to
the top 10. The VC funds were listed according
to the high yield their funds secured for their
investors.
Kobi Rozengarten, one of the two managing
partners of JVC, says, “Our high historical yields
are no accident. Our entire strategy is based not
only on financing the ‘right’ companies but also
in creating the maximum added value to our
companies. We have achieved positive returns
in five out of six funds. This is due to our strategy
nted industry
Kobi Rozengarten
Courtesy JVC
whereby we put an emphasis on creating value
first and exiting afterwards. This strategy has
proven to be successful as evidenced by our
results. If we float a company, we tend to wait
until we think it has reached a high value that is
to the benefit of our investors and the portfolio
company. This has been proven to be a winner
in many cases. Chromatis Networks was sold
to Lucent for $ 4.8 billion. We realized our
investment in Netro Corporation, which was
floated on Nasdaq when it achieved a market
cap of $5.5 billion. And we sold our shares in
QLIK Technologies, which is also traded on
Nasdaq, when it attained a market cap of $1.2
billion.”
There is a perception that the local hi-tech
industry is facing financial difficulties because
local VC funds, which are one of the more
important sources of funding, are having trouble
raising money. This reflects on the amounts of
money available in many portfolio companies
and the amounts available for investing in hitech companies. But Rozengarten disagrees.
“There is a lot of investment money around,
and the local science-oriented industry is
getting its fair share. In our opinion, there is
no shortage of funds. If a company has a good
technology with a promising market, there are
no problems finding investors. It is true that
many Israeli VC funds, like many such funds in
other countries, are finding it difficult to raise
funds, but this is because their yields have been
unsatisfactory. VC funds with a record of good
yields, JVC among them, are not finding it hard
to raise money. We are now in the process of
raising our seventh fund, and the results to date
are very satisfactory,” he says.
Many Israeli VC funds are indeed finding
it difficult to raise money, and the overall
amount available to local Israeli VC funds may
be less than in the past, but this is offset by
two important factors. Many global VC funds,
mostly American, have set up representative
offices in Israel and are investing directly in local
companies. Chinese companies are also setting
their sights on local science-oriented industries.
At the end of February, the governmentowned Chinese financial conglomerate China
Everbright announced that it was investing in
Israel. The company, with $3.5 billion under
management, announced that “Everbright’s
China and Israel Everbright Catalyst Fund is
to complete the first round of fund-raising,
nearly $100 million, to open up investment
opportunities in Israel.”
The fund in question is a joint venture with
the private investment company Catalyst.
They intend to raise some $300 million to
invest in Israeli science-oriented companies.
In its announcement, the Chinese company
emphasized the fact that this was its first
enterprise outside the confines of Chinese
territory.
The second aspect of the local scienceoriented industry’s relatively satisfactory fundraising opportunities is the micro fund. These
are small VC funds of up to $30 million focused
on certain areas of science-oriented industries,
such as medical devices, water technologies,
cyber security and biotechnology. These funds
invest relatively small amounts of money in seed
companies.
Focusing is one of the developments on the
local VC scene. The era of the large VC funds
that invested in all or most areas of the scienceoriented industries is past. Today, even a large
established company like JVC is focused.
Gil Tirosh, the other managing partner
of JVC, explains. “As an entrepreneurial VC
fund of 20 years, we have invested in many
innovative technologies, such as optics and
semiconductors. But now we are focused on
media, mobile, storage software enterprise and
cyber security. We believe these are high growth
areas in which Israel can deliver substantial
added value. Consequently, we have two
incubators that operate within the Government
Incubator Program. One is the JVC Media
Lab Technology Incubator in Jerusalem at the
JVC compound; the other is the JVC Cyber
Labs Incubator in Beersheba. These incubators
provide us with a very important source of deal
flows for future investments.”
At JVC, they believe that these technologies
are the wave of the future. Media is key because
the social networks have created a social
revolution in the way people connect with each
other. Media also includes such technologies
as Google Glasses and mobile technologies.
Storage and cyber security technologies are
intertwined because the dramatic increase
in the transfer of data through the Internet
creates both security and storage problems.
The vast amount of data being transferred over
the Internet creates security problems, as well
as problems storing the data. The incubator in
Beersheba is set to develop new technologies
that will enhance security in cyberspace and
solve storage problems.
Why Beersheba? The government is planning
to convert the city into a global cyber security
center. Ben-Gurion University of the Negev is
a world leader in Internet cyber studies, and
its proximity to the hi-tech security facilities
will be transferred to the vicinity of Beersheba.
And the IDF is a powerhouse of cyber security
technologies, since it has been at it for the past
30 years at least. Real Estate - Economic Post
April 2014
41
A new
socioeconomic
order
Alan Barkat
(Courtesy Dualis)
By Alan Barkat
A
recent decision by the Finance
Ministry could be the first step in
the establishment of social business
industry in Israel. The ministry has
announced the advancement of a government
fund to promote and develop social businesses
involving the weaker sectors of the population.
The fund, to be financed to the sum of NIS 11
million by the National Insurance Institution,
will make capital investments and provide
credit for social businesses with the ability to
meet the conditions determined in a tender.
This is a significant step that may well generate
a revolution.
For the first time, the state has recognized
the need to prioritize and encourage the social
investment fund and social business model in
Israel.
In the same manner in the 1990s, the
government invested some $100 million in 10
venture capital funds, which aided greatly in
the growth of the hi-tech industry in Israel.
Around the world, social investments have
become very popular, and that trend is now
coming to Israel. The entry of new financial
models and tools (social bonds, social bank,
social businesses) will change the balance
of power and the relationship between the
business sector and the social sector. Slowly but
surely beneath the surface, a new industry is
being established in Israel.
This is a new conversation that will break
down the dichotomy between business and
social aims. The business sector has already
begun to realize that business objectives are not
limited to maximizing shareholders’ profits; the
aim must be to raise the common value for all
those holding a stake – shareholders, employees,
suppliers, customers and the community.
On the other side of the coin, the social sector
is opening up to connections with the business
world and the intrinsic advantages of using
business tools to manage social initiatives.
“Profit” is no longer a dirty word.
It is no coincidence that the world of social
investments and connections between the
sectors is growing, as it is a solution for the
economy today. It is a creative solution to reduce
the size of some of the gaps in Israeli society. It is
42
April 2014
a form of economics that includes social protest
and changes the order of priorities. No longer
is it the economy first and the society second;
both travel the same path side by side. It is an
approach that expresses the public’s aspirations.
I believe that this is a world view that has
come into being because in their search for
meaning, the next generation of philanthropists
and businesspeople has had a change in
approach. They are taking apart and reexamining the conventions. The movement for
change has grown stronger since the economic
crisis in 2008, which caused the collapse of
large philanthropic centers. Social initiatives
and organizations had no choice but to find
new sources of funding. This is not a passing
fad. It is a real industry that will also grow in
the capitalist West. It is a new synergy between
capitalism and society.
The desire to contribute and invest effort in
the social milieu has grown precipitously, and
more businesspeople are contributing now than
in the past. But it is still not enough. According
to a recent survey by the Central Bureau of
Statistics, Israeli corporations make almost
no contributions to social organizations and
social aims in Israel. Most of the contributions
are from Jewish donors abroad and Israeli
households. Philanthropy is underdeveloped
in Israel. To fund their activities, nonprofit
charitable organizations must rely primarily
on grants from government ministries and
municipal authorities.
Hence, one of the core problems in Israel is
the relatively low level of local philanthropy
because most contributions come from abroad.
It is a problem that must be solved, particularly
in view of the growth of hi-tech in recent years
and the large number of young Israelis with
new capital and the wherewithal to make a
difference.
Another problem is the large number of
barriers that prevent and deter investors from
making contributions. For example, the state
settled the matter of philanthropic funds only
very recently through the Companies Law,
which now sets out the legislative arrangements
covering philanthropic funds used for
public benefit. In most developed countries,
contributions are made through philanthropic
foundations; but in Israel, that term did not
even exist in law until a few months ago.
Through a philanthropic foundation, it is now
possible to distribute grants, invest in a range of
social activities, and bequeath the foundation
to public bodies, family and children.
In practical terms, the foundation is a
financing tool that enables the proper, efficient
use of available funds for public benefit
by planning social contributions over the
long term. The legislative arrangements for
philanthropic foundations are undoubtedly a
welcome step, which will probably constitute
part of the solution for the low level of
philanthropic contributions. Even so, Israel’s
business sector is still unaware of the changes
and the new tools that have been developed.
Beyond the removal of barriers, the
government must also encourage the entry of
new Israeli activists into philanthropic circles,
which will require quite a number of additional
steps. The state has a duty and a pivotal role to
play in the transformation of this vision into
reality.
The next thing the state must do is to make
public funds available for social industry
investments, which will generate economic
yield from a values standpoint. The public’s
money invested in pension funds is one of the
most appropriate sources for social investments
providing steady, long-term yields. These are
win-win investments. The public both saves
and profits from the social benefits accruing to
such investments, aimed at rehabilitating Israeli
society. To make it happen, the government
must provide a safety net for the investors. It
will ensure that the money invested in pensions
will provide the steady yield expected by the
capital markets.
In real terms, social investment is a new
social–economic engine. Decision-makers and
the investing public would be wise to appreciate
that this is an opportunity to create balance and
provide for the society. The writer is the founder and CEO of the
Dualis Social Investment Fund (a nonprofit
organization). Urban Plan
(Courtesy Netanya Municipality)
New concepts
in urban planning
By Judah Massias
T
he times are changing very rapidly, and this
affects all aspects of the way we live. These
changes affect our place of work, the way
we get from one place to another, the way
we communicate, and the way we produce goods
and services.
These developments also affect the modern
home. The individual home is more automated,
which eases the task of maintaining the house
or the apartment. It has become a hub of
technology. The modern home is a smart home.
It incorporates the latest IT developments, such
as optical cables and Internet connections. The
smart home has advanced elements of remote
control, making it possible to monitor various
automated devices. It can open and shut the
climate control system, start the oven, operate
a remote control vacuum cleaner, water the
garden, etc.
What is also revolutionary are the changes in
urban planning.
Eden Bar, a leading architect and urban
planner and CEO of Barre Levie Architects and
Urban Planners, says, “A modern neighborhood
must meet the technological and environmental
exigencies of our times. But they must also take
the human element into consideration. There
44
April 2014
have been big changes in how we make a living
and how we get from one place to another. All
this and more must be taken into account when
designing a modern neighborhood that will be
suitable for the needs of the modern person.”
What are these needs and how are they
reflected in a modern neighborhood? A good
example of this concept is being planned in
Netanya. If the plan is realized, the neighborhood
will be located in the eastern part of the city, near
the town’s institute of higher learning and near
major national transportation systems, such as
the Trans-Israel Highway, the Haifa-Tel Aviv
coastal road and the Haifa-Tel Aviv railway line.
The urban area will incorporate the following:
A. It will provide housing for the full lifespan
of a person.
B. It will offer residents services that will meet
most of their needs.
C. It will be as eco-friendly as possible.
The modern person has become sedentary.
Computerized systems allow people a wide
amount of leverage while glued to a desk. This
characteristic has increased people’s attachment
to their place of residence. But because of the
varying housing needs of people at different
stages of their life, there is sometimes a need
to find suitable accommodation beyond the
confines of one’s preferred location.
When one is newly married, one needs
a relatively small home with one or two
bedrooms. As the family expands, a larger home
is necessary. If one becomes more affluent, one
may want an even larger dwelling. As one gets
older and the children move out, a large house
becomes a burden and smaller accommodation
is required. Later still, one may move to a
retirement residence or a nursing home.
For all these eventualities, a modern
neighborhood will supply all residential needs,
from newlyweds to the elderly. It will not be
necessary to move to different locations at the
various stages of life.
A modern neighborhood will also include a
commercial and an industrial sector. Because
of the large number of motorized vehicles in a
crowded country like Israel, the roads are very
congested and getting from one’s home to one’s
place of work can be very time-consuming.
The solution is a neighborhood that combines
housing with industry. New technologies have
streamlined the industrial process. They are
clean and create little noise, which makes them
suitable for residential areas.
Catering to the
business traveler
The view from the terrace
(Credit: Ritz Carlton)
I
By Ehud Lahav
nternational trade is very demanding, and
businesspeople must travel the world over
within the shortest times possible. It is not
uncommon for a local businessperson to
take an early flight to a European city from BenGurion International Airport in Tel Aviv, attend
a business meeting and return that same night.
Furthermore, the global village business concept
has made business travel a necessity and has made
business travel big business. Travel companies
specialize in arranging business trips and hotels
that cater to the needs of the business traveler.
Most hotels that specialize in catering to
business travelers also cater to bona fide tourists.
One of the leading hotels in Israel that caters to
the needs of the business traveler is the Carlton
Hotel, located on the beach in Tel Aviv. While it
is a deluxe hotel that caters to tourists, it is also
perfectly adapted to the needs of the business
traveler.
But what are these needs?
According to Jimmy Zohar, general manager
of the Carlton, “A hotel like ours pampers all our
guests, whether they come for a holiday to see the
sights of Israel or for business purposes. The needs
of the business traveler are different from those of
a holidaymaker. Some of them, especially if they
are engaged in some business or technological
project, stay for relatively long periods of time.
This means that the accommodations must be
spacious and inviting. Many of these travelers,
even when staying for short periods, usually have
to work in the evenings filling out a report on the
day’s activities. Their accommodation must have
the facilities to send reports by email, receive
emails and have a comfortable work area,” he says.
The Carlton has all of these. The hotel recently
refurbished the guest rooms on the 12th and 13th
floors. The new mini suites are 50 percent larger
than the standard room, have two terraces and sea
views. And they are equipped with all the cuttingedge gadgetry a modern businessperson needs
to conduct business, not to mention an espresso
machine to prepare coffee. Guests in these rooms
are entitled to full use of the business lounge and
all its facilities.
As business travelers are usually strapped
for time, the hotel’s culinary arrangements are
adapted to their needs. Guests are served a very
ample breakfast, which can keep them going until
early evening when the hotel serves dinner. For
those seeking something more, the hotel has a
rooftop gourmet restaurant and is refurbishing its
dining room.
April 2014
45
Mortgages
Managing
one’s mortgage
By Judah Massias
W
hen buying a home, the majority
of purchasers require a mortgage
because they do not have the
necessary financial resources to
pay for a home outright. For many, getting
an attractive mortgage is a very stressful
procedure. But what is even more stressful
is that one must make rather large monthly
payments for up to 30 years.
The monthly payments of the borrower are
primarily made up of interest payments. On a
30-year mortgage linked to the cost of living and
bearing an annual interest rate of three percent,
the borrower repays the bank more than three
times the amount of the original mortgage.
Consequently, since the interest payments
make up such an important part of the overall
monthly repayments, most people prefer to take
out a mortgage bearing the lowest interest rate
possible because they believe it will ensure the
smallest monthly payments.
But as Omer Doron, managing director
of Simple Mortgage, explains, "This is a very
common mistake. Insufficient knowledge on
the part of most borrowers means they will
be making much higher monthly mortgage
payments than could be. The smart way to
46
April 2014
take out a mortgage is by utilizing the different
sources of funds and creating a mortgage mix
that is the most advantageous. Our team at
Simple Mortgage has perfected a system in
which we are able to identify the mortgage mix
that is most advantageous to the borrower."
The Simple Mortgage system is based on the
fact that banks offer mortgages linked to the cost
of living, bearing floating interest rates or fixed
interest rates. They are shekel mortgages linked
to some foreign currency or unlinked mortgages
bearing floating rates (prime rate mortgages) or
fixed interest rates.
At present, the interest rates in Israel are at
a historic low; the prime rate stands at 2.25%.
Consequently, interest rates on a prime rate
mortgage are very low. Since the inflation rate
is low and will probably remain so for the
foreseeable future, it stands to reason that a
prime mortgage is the least expensive and thus
the most profitable.
It is the most profitable, but the Bank of Israel
has limited the prime rate element in the overall
mortgage to not more than one-third. The bank
is being cautious. A rise in inflation rates will
increase the prime rate, and this means that
the monthly repayment payments may reach
unsustainable levels.
Doron agrees that there is such a danger but
says it can be managed. "Prime rate mortgage
payments do not carry an early repayment fine
clause; consequently, if inflation rates rise and
the interest rate payments reach unsustainable
levels, one can always repay the mortgage and
get a linked fixed rate mortgage."
The figures for a wisely arranged mixed
mortgage look attractive, even when the
prime rate element is limited to one-third
of the mortgage. Someone taking out a NIS
500,000 linked fixed interest mortgage bearing
a 4% annual interest with an average monthly
inflation rate of 0.30% repayable in 30 years will
start paying the bank NIS 2,394.2. By the end of
30 years, he/she will be paying NIS 7,017.8, an
aggregate amount of NIS 1,548,211.9, which is
more than three times the original mortgage.
That same borrower taking out a NIS 500,000
mortgage of the right mix will start monthly
payments of NIS 2,394.2, the loan will repaid in
21 years, the last monthly payment will amount
to only NIS 3,826, and the total amount repaid
will add up to NIS 835,002. The difference in
the total payments is dramatic. It is too large to
ignore.
The 10 commandments of
buying a home
By Yochanan Altman
B
uying a home is one of the largest
and most important transactions
most people make in their
lifetime. Moreover, it is a transaction
that has an effect on a large part of their
lives. But strangely enough, many people
do not take the trouble to verify some
important points regarding the purchase
of a new home.
To make sure that you have all the
relevant information regarding your
new home, we have compiled a list of
the 10 top things you should verify when
buying a home.
1
If it is a new building, find out who does the
actual construction work.
Most development companies don’t do the actual
construction work. This work is subcontracted
to a construction company. Yuval Attia, CEO
of Boneh ve’Netivim, advises the buyer to find
out where the responsibility lies in regard to the
quality of the construction work.
2
Verify the ecological specifications.
Most modern buildings are supposed to be
environment-friendly. Oshry Zafrani, VP
marketing at Guy & Doron Levi, advises clients
to ensure that certain ecological criteria are met,
such as trash disposal facilities, insulation and
the materials used in the building process.
3
Determine the size by square meters.
The size of an apartment is measured by the floor
area, not the number of rooms, and is priced
accordingly. Nissim Ahiezra, CEO of Donitza
Bros., says, “Most Israelis buy an apartment
according to the number of rooms; but they
should rather concentrate on the floor area. A
five-room apartment can be spacious if the floor
area is adequate, say 120 square meters or more,
and is cramped if it is less. A five-room apartment
with small rooms will lower the quality of life of
those who live there, while an apartment with
more floor space will enhance it.”
8
Calculate the final cost.
The final cost of an apartment is never the cost
you agree on with the seller. Naama Schiff, a
lawyer who specializes in real estate, explains
that the final cost is usually much higher than
the asking price, so it is important to know
exactly what the final price will be. This includes
purchase tax, which varies with the cost of the
apartment; legal expenses; and any linkage or
interest when payments done are in installments.
Look into future costs and municipal taxes.
Tamir Mintz, chairman of the Israeli Association
of Real Estate Agents in Israel, suggests finding
out what one is expected to pay in municipal
taxes and maintenance costs.
“A family living in a two- or three-story building
with no elevator will be paying NIS 100 to NIS
250 a month. If that family upgrades to a highrise building with elevators, swimming pool,
gym, concierge services, etc., they may have to
pay up to NIS 4,000 a month. There are also big
differences in municipal taxes in the different
town. Givatayim, for example, is considered a
very expensive city, while neighboring Ramat
Gan is much less.”
5
9
4
Don’t be overly impressed by a model
apartment.
Ronnie Cohen, CEO of Eldad Marketing,
says, “A model apartment is usually a show
apartment. It is not the one you will be getting,
unless the model apartment is one of the
completed apartments and not one constructed
for display only. Consequently, one should look
into the technical details and discuss the cost
of amendments in the electrical and plumbing
arrangements in the floor plans.”
6
Discuss the interior design of a new home.
Eran Barak, VP marketing of Amram Avraham,
says that the buyer should speak directly to the
architect or interior designer, who will explain
the rationale of the floor plans.
7
Scope out the location.
Location is all-important, but the location in itself
is not enough. Racheli Barzeli, VP marketing at
the Ashdar development company, suggests that
one verify what the future municipal plans are.
Ask questions such as “Will I be surrounded in
the future by high-rises?” and “Are any (noisy)
public buildings being planned?”
Seek expert advice.
Many home buyers wisely engage the services of
their own lawyer in addition to the one provided
by the seller. But it is worthwhile to engage the
services of a professional appraiser.
Haim Mesilaty, an experienced appraiser, says,
“Such an expert will examine the specifications
of your new home as itemized in the contract
with regard to size, technical specifications, etc.”
Furthermore, in today’s high-rise complexes,
mistakes can occur, and an expert can make
sure that the apartment you signed up for ¬ size,
location in the building, etc. ¬ is, in fact, the one
you agreed to buy.
10
Analyze the future value.
Whoever buys an apartment may expect to resell
it at some time in the future. An apartment that
was suitable for a young couple with a young
child will no longer be suitable for a lager family
with two or three children. Consequently, a
family in which the children have already
grown up and moved out will no longer need
a large house or apartment. They can make do
with one or two bedrooms and a spacious living
room. Consequently, it makes sense to buy an
apartment in an area where prices will increase
in the future.
April 2014
47
Rothschild Boulevard in 1937 and in 2014
(Courtesy: )
Living history on
Rothschild Boulevard
By Jason Blackshaw
T
he area around Rothschild Boulevard
in Tel Aviv is coming into its own.
Once one of the most upscale
residential areas of the city, it is becoming
so again. The demand for quality housing has
catapulted prices, with apartments selling in
excess of $20,000 per square meter.
From the late 1950s to the end of the past
century, Rothschild Boulevard went into a
state of urban decay. By end of the century, the
trend had been reversed because old became
fashionable, and many landmark buildings
were restored and reverted back to being the
residences of the wealthy.
Rothschild is regaining its high-end status,
and the stately old buildings are the bases for its
recovery. These residences are evidence of the
fact that in the 1920s, 1930s and 1940s, the rich
and beautiful of Tel Aviv made it their favorite
place of residence. The whole boulevard is
dotted with landmark buildings, many of them
built in the Bauhaus style of Central Europe, but
most in the eclectic style popular in the Tel Aviv
of the 1920s and 1930s.
Many of these building are being restored
and are in the process of being converted into
luxury apartments with stunning penthouses or
rooftop apartments.
Rothschild Boulevard in downtown Tel Aviv
is an urban icon of the city. It is probably the
best-known street in Tel Aviv. It was one of the
first major streets laid out in Tel Aviv and is one
of the principal thoroughfares in the historic
center of town.
Its southern end starts at the edge of the
Neveh Tzedek quarter. It continues northward
to the cultural complex of the national theater
Habimah constructed in 1936; the Mann
Auditorium, the home of the world-famous
Israel Philharmonic Orchestra; and the Helena
Rubenstein Pavilion for Contemporary Art, one
of Israel's major museums of modern art.
It has now become one of the most expensive
48
April 2014
streets in the city. Probably only parts of
Hayarkon Street opposite the Mediterranean
are more expensive. It is an important tourist
attraction, with a wide, tree-lined central strip
with pedestrian and bicycle paths flanked by
wide paved lanes for traffic on the sides.
Rothschild Boulevard started life in the
first years of the last century as Rehov Ha’am,
or "street of the people." Later, the city fathers
renamed it in honor of Baron Edmond de
Rothschild. The boulevard is located in the heart
of the historic center of Tel Aviv, or the White
City, a UNESCO designated World Heritage
Site because of the large number of Bauhaus
buildings.
When analyzing Rothschild Boulevard from
a real estate perspective, one must divide the
street it into its north and south sections.
The southern part of Rothschild Boulevard is
at the heart of Tel Aviv's financial district. It is
where the office tower of the First International
Bank is located. It is also where the Israel offices
of HSBC Bank, the Bloomberg L.P. offices and
the Julius Baer Group are located. Consequently,
there are many high-rise towers housing offices
of financial institutions, law firms, etc.
In this part of town, many development
companies have constructed high-rise luxury
residential towers as well. Apartments in the
Mayer Tower at the corner of Allenby and
Rothschild fetch record prices of $ 30,000 per
square meter.
In the northern end of the boulevard,
development has taken a different turn. Old
buildings are being renovated and converted into
luxury apartments, and any new developments
are low-rise buildings. In this part of town, old
is beautiful, and the emphasis is on restoring
the past. Consequently, it is very different from
the southern half. While the southern half is
a modern, bustling business and commercial
district, the northern half is a quiet residential
district with elegant apartment buildings. They
are low-rise buildings with spacious apartments
with large rooms and high ceilings. It is also
adjacent to what has become one of the major
cultural and entertainment areas of Tel Aviv.
One of the old buildings being renovated is
an 80-year-old apartment building, the property
of the Weinberg family. It is at the northern
end of the boulevard near the Habimah-Mann
Auditorium and Helena Rubenstein Pavilion
complex. The new apartment building is aptly
called The Home in Habimah.
Rani Weinberg, the project manager of the
Weinberg family, says, "The property has been
in the family ever since it was constructed in
the 1930s. It was a high-end apartment building
then, and that is what it is set to become once
more. We intend to restore the building to its
former glory. We have completely gutted the
interior and are adding two penthouse floors
and an underground garage for the residents."
Weinberg explains that there is much demand
for quality housing in the downtown areas by
those who prefer the intimacy of a low-rise
building with a limited number of apartments
to living in, say, a 40-story tower with well over
100 apartments.
The Home in Habimah, located in the midst
of Tel Aviv, will be completed in mid-2015. It
is adjacent to the cultural centers around the
Habimah Theatre and within walking distance
of the city’s most chic restaurants and cafes.
Residents of The Home in Habimah will be
within walking distance of everything necessary
for gracious living.
The building has six floors and is divided into
two duplex garden apartments, each covering
half of the ground and first floor. Each floor
covers an area of 270 square meters that will be
divided into one or two apartments. The two top
floors house the spectacular penthouse, with a
large open terrace on each of the floors and a
private outdoor swimming pool on the terrace
of the lower floor.
AngloSaxon
celebrates
its 50th
anniversary
Father and son: Werner and Bennie Loval
(Courtesy Anglo-Saxon Jerusalem)
By Jason Blackshaw
M
ajor activity in the Israeli real estate
market started about 50 years ago.
Building activities prior to the Six
Day War were limited to low-cost
housing for new immigrants, the shikunim
built by the government in record time at the
lowest possible cost. The Six Day War brought
an influx of 100,000 immigrants, along with
long-term and short-term residents from
Western countries, who expected to buy
higher-standard apartments, but the Housing
Ministry hardly spoke their language. It was
a period of heavy demand and very little
residential real estate available.
That is when Dave Blumberg from South
Africa and Werner Loval from New York decided
to form a partnership. Blumberg opened the
first Anglo-Saxon real estate office in Tel Aviv in
1964, and Loval followed in Jerusalem in 1969.
It did not take long before Anglo-Saxon opened
additional offices in various parts of the country.
At the beginning, the local branch managers
were employed by Anglo-Saxon, but after a
few years Blumberg and Loval turned their
nationwide network into a chain of franchises.
The manager signs a contract with Anglo-Saxon
and pays monthly franchise fees based on sales.
Israelis, too, began to buy apartments and
houses through Anglo-Saxon, and eventually
they became the major part of the company’s
clientele.
“However, even later, when English, French
and Spanish-speaking buyers from abroad
became a minority, we decided to keep the
name Anglo-Saxon," says Loval. By then, it had
become the largest and best-known real estate
company in the country.
Above all, Anglo-Saxon agents advise
their clients to choose an apartment with a
potential for appreciation in value -- i.e., an
apartment with a high standard of finish in a top
neighborhood or in a quiet developing suburb,
keeping in mind that only seven percent of the
land in Israel is privately owned. Foreign buyers
want explanations as to why most of the land in
Israel belongs to the state.
Looking back on the company's first 50
years, Loval says that every new economic
development in the country brought with it
a new wave of real estate buyers. For example,
hi-tech executives who benefited from the
hi-tech boom, which transformed the Israeli
economy into a branch of Silicon Valley, started
buying luxurious apartments, penthouses and
villas in Herzliya, Ra’anana, Tel Aviv, Haifa and
Jerusalem. At the same time, Anglo-Saxon's
commercial sections in the various franchise
offices were expanded.
In the Jerusalem branch, Loval's son, Bennie,
joined the company 25 years ago after obtaining
his MBA. He has since expanded it to be the
largest and most profitable of all the AngloSaxon branches in the country, with four offices
and a staff of 50 salespeople and managers, who
deal with residential and commercial real estate.
A few years ago, the Lovals welcomed Ronen
Shitrit as chairman of the nationwide AngloSaxon network. He was previously the ownermanager of the Anglo-Saxon franchises in Lod,
Ramle and surroundings. A veteran member
of the Anglo-Saxon management team, Shitrit
opened a number of new branches in the
country, bringing Anglo-Saxon's total number
to more than 80 offices.
As for the future, Bennie Loval expects
a steady increase in sales of high-standard
apartments and houses in most parts of the
country, based on the ever-increasing successful
ventures by Jewish investors from Israel and
abroad, especially from France and the US.
The company’s long-standing slogan “Have a
foothold in Israel” still has great drawing power
and attracts more home buyers than ever to the
Judean Hills, as well as the Mediterranean and
Red Sea beachfronts, even after half a century.
Anglo-Saxon recently opened several new
offices in cities that will soon be connected to the
center of the country with the rapidly expanding
railway network. They will additional links in
the chain of offices in such areas as Dimona,
Tiberias, Kohav Yair, Acre, Netivot and
Nazareth, all of which were opened recently.
With 50 years of experience, Anglo-Saxon
offices are in a prime position to counsel buyers.
The company was established to assist both
Israeli and overseas buyers and continues this
tradition successfully.
“There are very few companies in Israel that
have existed for 50 years, and none at all in our
industry,” says Werner Loval. “This is surely a
good reason for us to take pride in the thousands
of people we have assisted during these decades
to find their home, and in the hundreds of
the ‘Anglo-Saxon family' members who have
worked to make this possible.”
April 2014
49
The Economy: Panel discussion
Economic views
and overviews
By John Benzaquen | Photos by Nimrod Saunders
I
n the second week of March, the new
government of Israel celebrated its first
anniversary. In honor of the event, the
public relations office of the Prime Minister’s
Office published a list of things that had been
done. Among the items were a NIS 12.5 billion
investment in transportation infrastructure
throughout the country; free education for
290,000 kindergarten age children; GDP growth
of 3.3 percent, compared to the OECD average of
1.2%; an unemployment rate of 6.2%, compared to
an average 8% in the OECD; and free dental care
for children under 12.
Many financial analysts are critical of the
government’s record. Consequently, The Jerusalem
Post assembled a panel of experts to evaluate the
economic performance of the State of Israel in the
past 12 months.
The panel consisted of the following members:
Eran Bar-Tal, chairman of Calcala for You, a
nonprofit organization dedicated to increasing
awareness of good financial planning
• Shmuel Ben-Arie, head of research at Pioneer Private Wealth Planning
• Yitzhak Cohen, MK and member of the Knesset’s Finance Committee
• Oren Harel, chairman of Privatequity.bit
• Ronen Menahem, chief economist at Mizrahi Tefahot Bank
• Jacky Mukmel, president & CEO of Man Properties • Avda Tal-Zohar, CEO of Forex Capital 50
April 2014
Markets Israel
• Moderator: Juan de la Roca, reporter at The Jerusalem Post
Panel, in a recent press release, the Prime
Minister’s Office quoted Binyamin Netanyahu as
saying that the government had a good record
since taking office, listing such things as free
kindergarten education, vast amounts invested in
rail and road infrastructure, relatively high GDP
and a low rate of unemployment. Do you think
their performance has been poor, satisfactory or
good?
Eran Bar-Tal: I know that I may be in the
minority, but I believe that their performance
was more than satisfactory. Large investments
in infrastructure always generate economic
growth. Investments of NIS 12.8 billion in a year
of stringent budgets is no mean achievement. I
also believe that the GDP growth is more than
satisfactory under the circumstances, and the
unemployment figures are very good news.
But the most important part is that they have
maintained economic stability. But having said what they did well, I must also
point out that there are many things that still must
be done. For example, the economy is far from
being a free-market economy. One of the major
problems is that the government has no clearcut economic policy. Of the two major parties,
the governing Likud party has major dissension
on economic policy, and I can say that they are
oriented towards a pro Histadrut [trade unions]
socialist economic policy. The dissension within
the governing coalition is deeper still between
the middle-class Yesh Atid party and much more
populist Likud.
The prime minister wants to make more
reforms and has repeatedly stated that he wants
to make the economy more free market. In my
opinion, there is an urgent need for reform on land
and in the way human resources are being used.
There is no free flow of labor because some 50%
of those employed have inflexible labor contracts
underwritten by the unions. Companies that have
to lay off staff to survive find it very difficult to do
so because they are bound by restrictive contracts.
Much has been said about the high real estate
prices and the shortage of new housing. I believe
the main cause of this is the restricted market of
land. The government, through the Israel Land
Administration, owns more than 90% of the land
in Israel. This concentration of power destroys any
free market in land. It is reflected in the shortage
of building land and, consequently, the shortage
of housing. If the land market were freed of its
constraints, I believe real estate prices would be
lowered.
Mr. Cohen, you were deputy finance minister in
the last government. Is this government continuing
the policies of its predecessor?
Yitzhak Cohen: I read with interest the press
release in which the Prime Minister’s Office lists
their ‘achievements’ since taking office. Most of
those resolutions were made by the previous
administration and had already been put into
motion. These include large investments in
upgrading roads and railways, as well as free
kindergarten education. And the decision to
provide free dental care for children under 12
was made by the previous health minister, Yaacov
Litzman. This means that most of the things they
are boasting about were the doing of the previous
administration. This is very flattering for me as
former deputy finance minister.
In contrast, what they are doing new is
worrying, such as exempting some categories of
home buyers from paying VAT when purchasing
buying their first home. The decisions they
are making, especially those of the finance
minister, are creating great damage because
they have caused many senior civil servants in
the Finance Ministry to resign in protest. The
most prominent and high-profile of them is the
ministry’s chief economist, Michael Sarel.
Jacky Mukmel: I am very worried because
when I hear senior government officials boasting
about the strength of our economy, I have the
impression that we are living in a fool’s paradise.
I go back to 2007 when US government officials
were boasting about the strength of their
economy. A few weeks later, the sub prime bubble
burst, setting off an economic and financial crisis
that is still evident seven years later. I have the
feeling that something similar may happen here.
I am not blaming the prime minister. He has a
tough lot with a coalition such as his. His policy
is one of survival, trying to keep his head above
water until the next vote of no confidence in the
Knesset.
I think that the decision to exempt first-time
home buyers from paying VAT is a half-baked
plan that will be counter-productive. It will not
bring down real estate prices and will not help
the young couples that that new regulations
want to benefit. Most young couples don’t have
the means to make the necessary down payment
on an apartment. A young couple can obtain
a mortgage equal to 50% of the value of the
property. But few couples can come up with the
additional 50%. It means that it will only benefit
speculators and investors who will buy properties
in the name of eligible young families. It will not
bring down real estate prices because if demand
for real estate increased, as it may well do when
the supply of housing is insufficient, this means
that pressure on prices will increase.
I am also worried because the divide between
the Tel Aviv metropolitan area and the outlying
areas in the north and south is widening to
unsustainable levels. And I am worried because
supply of real estate is not keeping pace with
the housing needs of the population. One of the
ways to solve this problem is by taking a leaf from
what is happening in New York, London and
Berlin. They are converting dilapidated old office
blocks and industrial buildings into apartments.
It is quicker and cheaper than building new
apartment buildings because the authorization
process is much faster. Furthermore, converting
an office tower into a high-rise apartment
building costs some NIS 4,000 per square meter
compared to over NIS 6,000 per sq. m. for new
buildings. There is currently an overhang of one
million sq. m. of unutilized space. My suggestion
can solve the problems of excess supply of office
space and the shortage of housing.
Shmuel Ben-Arie: I am also worried. I’m
concerned about the long-term effect of the
current economic policies. When the government
took office, they said that reducing the
government deficit and increasing employment
were their major preoccupation. They succeeded
in reducing the budget deficit and reducing
unemployment, but the steps they took to
achieve those two aims will affect GDP growth.
And I fear that it is already affecting GDP
because consumption, which is a very important
element in GDP growth, is falling. The latest
CPI figures suggest that the public is restraining
demand. To generate economic activity, the Bank
of Israel has lowered interest rates. But while
the bank intended to make inexpensive credit
available to the business sector, the money is
being used to finance purchases or real estate and
is driving up real estate prices. This combination
may have negative long-term economic
repercussions and, if not curbed, might even
cause a recession.
Oren Harel: According to the latest economic
indices, we are doing fine. But in my opinion,
these indices don’t give the true picture. They
are distorted. The long-term prosperity of
this country is based on the science-oriented
industry, and it is having long-term problems.
The current state of the industry is satisfactory,
but its long-term prospects are less promising.
The science-oriented industry needs highly
qualified personnel, and I’m not sure that
in the future this will be readily available.
The number of high school graduates with
the necessary qualifications to go on to a
technologically oriented university is decreasing.
Furthermore, a combination of low net salaries
and insufficient incentives in the scienceoriented industries is creating a very worrying
brain drain. According to estimates, there are
40,000 Israeli engineers and programmers
employed in the US. These highly talented
people, who are doing their bit to increase the
GDP of the US, could be working here and
increasing our GDP. Each hi-tech professional
creates four additional service jobs. This means
that if they were working in Israel instead of the
US, they would be creating 160,000 additional
jobs. The future of the science-oriented industry
depends on education. Unless the government
sets its educational priorities right and upgrades
technical education standards, the future of the
start-up nation may be at stake.
Israel seems to be awash with money. Is there
a financial overhang, and is it caused by the fact
that the many have little and the few have a lot? Ronen Menahem: There is an excess of
available money in this country, but I don’t think
it is caused by the socioeconomic divide. This
is a worldwide phenomenon, not something
unique to this country. The central banks of the
US and Europe have been pumping money into
their systems as a means to promote economic
growth.
With regard to the current economic situation
and economic indices, the CPI is inaccurate
because it doesn’t take into account the price
of real estate, the cost of financial services and
the rise in the value of stocks, bonds and other
securities. These elements should be taken into
account because they are part of our cost of
living. If they were, the rate of inflation would be
much higher and interest rates might be higher.
The low interest rates are not the only thing
driving up demand for real estate. It is also the
shortage of alternative investment options.
Eran Bar-Tal mentioned the stability of
the economy. Yes, the economy is stable but
it is instability within a global instability. The
well-known buoys of economic behavior are
undergoing big changes. A year or more ago,
the rating agencies reduced the triple A rating
of the US, and most economic experts believed
that demand for US government bonds would
collapse. But the opposite happened. Last year,
most experts were debating how to prevent the
budget deficit to go above 5%, and a few months
later it became apparent that the deficit was
barely 3% of GDP. There seems to be an aura of
uncertainty that is making economic predictions
difficult and very dicey.
Avda Tal-Zohar: Do I agree with
government’s policy? For me, the question is
irrelevant. The government is expected to make
good things happen and prevent bad things
from happening. In my opinion, they are not
preventing certain bad things from happening,
such as preventing such small net salaries that
may cause a catastrophic situation. Most people
in this country are living beyond their means
because they are being crushed by high overall
taxes and a very high cost of living. To bridge the
gap, they are borrowing money from loan sharks
and repaying those loans by getting additional
loans. There will come a time when they will not
be able to repay their loans, and that will be the
start of an avalanche of bankruptcies.
Mr. Menahem, are we on the threshold
of a wave of bankruptcies? Most banks are
encouraging clients to take out loans. Is this a
positive situation?
Ronen Menahem: With regard to the first
question, I don’t know because credits given
outside the banking system are beyond my
scope. With regard to banks offering loans
to individual and households, this is not a
negative development. It may well be that the
banking system wants to spread its risk factor
and, instead of giving very large credits to
large corporations, prefers to give small loans
to households. I don’t think this threatens the
stability of the system. If it did, the Bank of
Israel would intervene.
Mr. Cohen, if your party were part of a
April 2014
51
The Economy: Panel discussion
Itzhak Cohen
coalition government and you were named
finance minister with unlimited power, what
would be your policy?
Yitzhak Cohen: You shouldn’t ask what my
policy would be but rather what the results of
that policy would be. The results of my policy
would be to generate economic growth and
ensuring that the benefits of increased growth
would be evenly distributed, even if it meant
cutting the defense budget. The large divide
between the haves and the have nots is very
dangerous to the stability of the state and should
be given priority.
With regard to the increased investment
demand for real estate, I would encourage
short- and medium-term saving programs by
giving tax breaks and other incentives.
Mr. Bar-Tal, do you think the socioeconomic
divide is a big problem?
Eran Bar-Tal: Yes, it is. Let me give you some
figures that will illustrate the problem. Some
15% of the population pays 85% of the taxes
because of the divide between the few who earn
a lot and the many who earn a little. I believe
we can lighten the lot of low-income families
by means of financial education. We have a
nonprofit organization that teaches people,
especially at the high school and university
level, good financial planning. We believe that
by knowing how to make optimal use of one’s
financial resources, one can cut costs.
More than 50% of households, for example,
have overdrafts. These credits charge very high
interest rates, so the first thing one should do is
rid oneself of overdrafts. This is the first step in
good financial planning.
When people don’t know how to organize
their finances, and most don’t, they tend to slip
into a credit pit in which loans bring about more
loans until the burden becomes impossible
to bear. We try to explain that good financial
52
April 2014
planning means choosing the best alternative in
a given situation.
Mr. Harel, Economy Minister Naftali Bennett
says that the hi-tech industry can raise as much
money as it needs without difficulty. Your
company helps finance start-up companies. Is
your company perhaps superfluous?
Oren Harel: It is true that there is a large
amount of money ready to invest in the hi-tech
industry, but we are not competing with investors.
What we are doing is creating a platform where
investors and companies that need money can
meet. The advantage of our platform is that it
offers investment opportunities to small investors
who may want to invest in start-up companies. It
also allows employees of those companies who
were given shares to sell them.
Mr. Ben-Arie, at a time when yields on bonds
and other securities are at an all-time low, why
does one need a financial investment adviser like
you?
Shmuel Ben-Arie: A financial adviser can
maximize the meager yields of a secure financial
investment. In the recent past, investors
expected to get a yield of 4% to 6% over and
above the rate of inflation on a safe financial
investment. And that was a normal yield. Today,
one can consider oneself lucky if the yield on a
safe, solid financial investment is 0.5% or, with
a good investment consultant, 0.7%. Investors
should have realistic expectations because that
avoids disillusionment.
Mr. Mukmel, buying groups are now active
in the office real estate market. Is this a positive
development?
Jacky Mukmel: No. It is a very negative
development because most of these investors
don’t know what they’re getting into. It is
especially risky in a falling market because
empty, unrented office space is a very costly
affair. The moment the owner receives the
keys to his property, the municipal tax starts
ticking at a monthly rate of NIS 70 per sq. m.
This means that the owner of 100 sq. m. of office
space has to pay NIS 7,000 a month, and that
doesn’t include maintenance costs.
It stands to reason that that small investor
with limited financial resources will want to rent
the property as soon as possible and will tend
to charge less rent. This means that these small
investors will lower rental costs.
Mr. Tal-Zohar, do we have a problem with the
exchange rate?
Avda Tal-Zohar: Exporters have a problem
because the strong shekel makes their products
more expensive and reduces sales. For
importers, the strong shekel is a boon. But the
problem is not whom the strong shekel benefits
or harms but realizing that there is nothing one
can do to prevent the rise in the value of the
shekel against the dollar, the euro, the pound or
the yen. The local dollar-shekel foreign currency
market has a monthly turnover of $100 billion.
With all the will in the world, the Bank of
Israel cannot stop the rise in the value of the
shekel against the dollar if the dollar is weak in
the global money markets.
Mr. Menahem, how will the local economy
perform during the rest of 2014?
Ronen Menahem: Israel is a very foreign
trade oriented economy; consequently, the
performance of the local economy until the
end of 2014 will depend on how the economies
of the US and Europe behave. I believe that the
US economy is improving and so are some of
the Western European countries. This will have
a beneficial effect on exports. Furthermore, the
improving US economy may strengthen the
dollar and that, in turn, will help local exports.

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