Due to the necessity to strengthen buildings against earthquakes, several new laws have been enacted in order to facilitate these urban renewal projects. The first of these changes in the law is a national town plan called “Tama 38”. Since the cost of the renovation is to be paid by the apartment owners, this plan enables apartment owners to finance the renovation project by selling building rights to a construction company. The construction company will renovate and strengthen the building and in return will get the right to build extra apartments which it can sell. The building rights are created by the municipality which allows them to add on extra floors to the building where previously they might not have been allowed to.
In this type of a project the apartment owners pay capital gains tax for the rights that are created under “Tama 38” and the construction company pays purchase tax for these rights. The tax authorities calculate the tax based on the value of the rights.
This approach causes discrimination between Tel Aviv and other cities. For example, if a construction company buys building rights in a building in Petach Tikvah and building rights in a building in Tel Aviv he will pay less tax in Petach Tikvah even though the apartment owners in both buildings are getting the same thing. Because the price of property is higher in Tel Aviv then it is in Petach Tikvah, the owners of the Tel Aviv building will pay more tax.
There are not enough of these urban renewal projects going on due to the expense of renovation. Due to the importance of these projects (i.e. the strengthening of buildings against earthquakes), the Government should ease up on the taxation of these projects wherever and whenever it can.