The decision whereby owners of old homes in the Rova 3 area in Tel Aviv will not be able to benefit from an exemption from the Betterment Levy arising from TAMA (National Outline Plan) 38 for urban renewal is making waves. The great fear is that the decision will put Rova 3 and neighboring Rova 4 in the northern part of central Tel Aviv into a long period of uncertainty about the level of Betterment Levy that will be collected from home owners.
Betterment Levy is imposed at the rate of 50% on the increase in value of a property deemed to arise from changes in planning rules. It is collected when the property owner utilizes the new rules, for example by building an extension to a home, or when the property is sold.
Last Thursday, the appeals committee of the Tel Aviv District Planning and Building Committee decided by a majority vote that the Rova 3 urban renewal plan in Tel Aviv would trigger a Betterment Levy on people selling homes in the area, meaning a charge of tens and even hundreds of thousands of shekels. The committee’s stance is opposed to that of the majority of real estate appraisers who have examined the Rova 3 and Rova 4 plans, which give home owners extra building rights.
Prices of apartments in the Rova 3 and Rova 4 neighborhoods have risen by about 30% in the past three years, and currently average some NIS 65,000 per square meter.
The Rova 3 and Rova 4 neighborhoods are considered a substantial part of "the real Tel Aviv". Rova 3, or to be more precise its northern part, is the city’s Old North, bounded by the Yarkon Rover in the north, the sea in the west, Ibn Gabirol Street in the east, and Bograshov Street, Ben Zion Boulevard, and Marmorek Street in the south. Most of the buildings in the neighborhood were built in the 1930s and 1940s, and it contains many of the buildings on which there are preservation orders under UNESCO’s declaration of the "White City" of Tel Aviv as a World Cultural Heritage site in 2003.
Rova 4 is larger in area, and is bounded by Ibn Gabirol Street in the west, the Yarkon River in the north, the Ayalon Highway in the east, and Shaul Hamelech Boulevard in the south. Together, the two neighborhoods cover 5,300 dunams (1,325 acres).
The Rova 3 plan (3616/a) and the Rova 4 plan (3729/a) were approved in early 2018. They were designed to determine a clear set of rights for additional construction under TAMA 38 and previous plans that applied to these areas, which contain some 55,000 housing units altogether, of which 36,000 are in Rova 3. The two plans were based on section 23 of TAMA 38, which allows a local authority to apply it by neighborhood.
Following approval of the plans, the Tel Aviv Municipality demanded Betterment Levy of hundreds of thousands of shekels from home owners in the two neighborhoods. The property owners argued that since TAMA 38 contained an exemption from the Betterment Levy, the levy should not be imposed on them under the Rova plans.
The interpretation of the appeals committee, however, was that the Rova 3 plan in Tel Aviv introduced certainty into the principles of TAMA 38, to the extent that the Tel Aviv Municipality has no discretion in issuing building permits under the plan. It therefore confers great added value, which ought to translate into a Betterment Levy.
Other cities seen following in Tel Aviv’s footsteps
Adv. Ronit Alper, formerly chairperson of the Central District appeals committee, says that, following this decision, the way is open to a similar decision concerning Rova 4. "There is no decision about Rova 4 yet, but the plan for that neighborhood is similar to the point of being identical in its principles to that of Rova 3, so the decision for Rova 4 will probably be the same," she says.
"The decision introduces uncertainty into the market, and in my opinion it will have the effect of freezing deals in Rova 3 until Betterment Levy assessments are carried out there, which is liable to take time. It is not inconceivable that the assessments will determine that the plan has not in fact enhanced the value of properties in the neighborhood, or that the betterment is very small," Alper adds.
The consequences of the decision will be on several planes. The first, immediate consequence is the freezing of deals in Rova 3, and perhaps in Rova 4 as well. People who were interested in selling their apartments will halt the sale until there is final clarification of how much Betterment Levy will be imposed on them as a result of the appeals committee’s decision. If it is too high for their liking, they will refrain from selling.
"I think that Rova 3 and Rova 4 will go together, and the ordinary citizen is already struggling to understand what’s going on," says Adv. Ofer Toister. "Today, someone on the north side of Bograshov Street, which is in Rova 3, is liable to Betterment Levy amounting to NIS 300,000-400,000, while someone on the south side of the same street, which is not included in the neighborhood, doesn’t have to pay. Apart from that, anyone who sells an apartment that has undergone renovation or rebuilding under TAMA 38 benefits from the exemption, but a person whose apartment has not had TAMA 38 applied to it pays."
In addition, it is likely that the decision will encourage other local authorities to draw up similar plans under section 23 of TAMA 38. There are currently fifteen cities in Israel, among them Ramat Hasharon, Herzliya, Bat Yam, Jerusalem, Kiryat Motzkin, Rehovot, and Tel Aviv, that have such plans. Other cities, among them Haifa, Rishon Lezion, Petah Tikva, and Yavne, are working on plans, and it could be that the fact that they could bring in Betterment Levy charges will prove an incentive to approve them.
Have values risen thanks to the plans?
Has the Rova 3 plan really enhanced property values? From the start, the Tel Aviv Municipality had low expectations of the plan and estimated that only 50% of the building rights that it gave to buildings in the neighborhood would be exercised.
A member of the appeals committee, real estate appraiser Zohar Iron, who opposed the decision, argued that the fact that so far only 10% of the building rights under the plan have been utilized indicates that the plan does not really guarantee extra construction for all the buildings in the neighborhood.
Iron said that utilization would be partial, drawn-out, and would in some cases prove impossible, and so it was hard to determine that the Rova 3 plan in Tel Aviv created complete certainty for property owners in the area, as the appeals committee decided.
Iron explains that this is consistent with examinations made in the past by appraisers carrying out deciding appraisals of property prices in Rova 3, which found that the Rova plan had not raised the value of homes in the neighborhood at all.
Iron further argues that the Tel Aviv Municipality has not succeeded in demonstrating that home prices in the area have risen because of the plan. This issue will have to be reexamined by an appraiser advising the appeals committee, and it could be that it will be found that in many cases the betterment is theoretical, or such as will be realized only in many years’ time, so that it is much lower than what the municipality demands.
The price: Bureaucracy and a flood of court appeals
Something else that will probably develop is an unending tangle of assessments and appeals and court petitions. "The question is, what will happen with dozens and even hundreds of cases that have already been considered by deciding appraisers and are still on the appeals committee’s table. I think that the appeals committee will examine the assessments in the light of the principles it has outlined in its decision, and they may even be returned to the deciding appraisers to be reconsidered under the new assessment principles," says Alper.
Toister points out that in every case in which the deciding appraiser found that TAMA 38 was involved in his betterment calculation, the Tel Aviv Planning and Building Committee rushed to appeal.
"The upshot of all this," says Toister, "is hundreds of files that will continue to lie in drawers waiting for an in-principle decision by the appraiser advising the appeals committee. Besides that, it is clear that the matter will eventually reach the Supreme Court for a ruling. That will cost time, money, and uncertainty for the Rova 3 and Rova 4 neighborhoods in Tel Aviv."
Published by Globes, Israel business news - en.globes.co.il - on August 22, 2022.
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