The Israeli cabinet today approved grants for developers converting offices to hotels in Tel Aviv amounting to 10% of their investment. Up until now, the Ministry of Tourism has barred grants for hotels in Tel Aviv and Herzliya because they were not defined as priority areas. Prime Minister Benjamin Netanyahu said in today's vote that grants for converting residential buildings to hotels in Tel Aviv should also be considered, even at the cost of reducing the supply of housing. He said that the aim was to attract as many people as possible to Tel Aviv, where businesspeople currently account for half of the hotel overnights in the city.
The Ministry of Tourism's budget for grants in the current year is NIS 250 million. In 2017, the ministry's grants totaled NIS 181 million for construction of 2,570 hotel rooms in 35 projects to be developed in the coming years. The largest grant was NIS 35 million for preserving and building a low-price hotel in Jerusalem with 248 rooms. Grants were approved for five projects in Jerusalem with a total of 482 rooms.
Other hotels planned include a 356-room hotel in Netanya, a 240-room vacation hotel in Rishon Lezion, and a hotel in Bat Yam with 275 luxury suites. Grants to developers are determined according to the Ministry of Tourism's criteria and the map of areas with priority. These areas have not hitherto included Tel Aviv and Herzliya, and now that Tel Aviv is being added, Herzliya will remain the only excluded area.
Commenting on the change in policy, Minister of Tourism Yariv Levin said, "The tremendous momentum in incoming tourism to Israel and the growing demand for vacations in Israel require creative solutions on short timetables for increasing the supply of overnight infrastructure. Encouraging the conversion of buildings in Tel Aviv to hotels, which I am urging, comes on top of a series of other measures taken by the Ministry of Tourism over the past two years aimed at making it easier for developers to increase the number of overnight rooms in Israel in order to lower prices."
Today's decision is part of the process led by the Ministry of Tourism with the aim of making concessions for developers and encouraging construction of new hotels. The reason why grants are being given in Tel Aviv for conversion of buildings is above all the shortage of land, and secondly the fact that converting a building to a hotel takes 12-18 months less than building a new hotel, and is also cheaper. Furthermore, the Ministry of Tourism currently prefers construction of medium-rated new hotels, and investing in the conversion of existing buildings usually produces this level of hotels. In view of that fact that investment costs for hotels built from scratch are usually mostly independent of the hotel's rating, developers will prefer opening luxury hotels. The Ministry of Tourism expects construction to reach 1,000 rooms in the coming years. Those undertaking such projects will be entitled to a grant from now on.
The ceiling for grants to developers in Tel Aviv has not yet been finally determined, but is expected to be in the neighborhood of NIS 25 million. There is no restriction on the number of rooms in a hotel with a ceiling grant of NIS 250,000 per room. There is no restriction on the area in Tel Aviv where the conversion takes place. The Ministry of Tourism, in cooperation with the Tel Aviv municipality, is setting up a special track for developers with bureaucratic concessions in the process involving only approval from Tel Aviv Local District Planning and Building Commission, without any approval from the Tel Aviv District Planning and Building Commission being required. The emphasis on the conversion of buildings is a result of a shortage of land. The Ministry of Tourism has even embarked on a campaign for locating empty offices in order to encourage ventures for converting them to hotels. The plan approved today is for two years.
The average occupancy rates in Tel Aviv are the highest in Israel, with foreign tourists accounting for most of the overnights in the White City area of Tel Aviv. A number of hotels were recently opened in Tel Aviv, such as Setai in Jaffa and Saul, in the Bezalel market area, which will be opened in April. The Drisco Hotel will also be opened soon in the American-German Colony in the city.
These grants will be given according to the definitions, instructions, and rules of the Tourism Investment Authority (under the Law for the Encouragement of Capital Investment - 1959), with the necessary changes, through an investment committee. One example of the conversion of offices in Tel Aviv to hotels is the Fattal Holdings (1998) Ltd. (TASE: FTAL ) chain's NYX Hotel on Harakevet Street in Tel Aviv, which is being branded as an urban hotel. For the Ministry of Tourism, this is a model for the conversion of rooms within a short time span at low cost, thereby adding hotel rooms to the supply.
An all-time record 3.6 million tourists visited Israel in 2017, 25% more than in 2016. Levin has set a target of five million tourists in the coming year. The Ministry of Tourism's marketing efforts are aimed at a diverse market, including both religious pilgrims and city break tourists in Tel Aviv and Jerusalem. Grants are being given to airlines opening lines to Israel. Air India is getting €750,000, all of which is likely to be invested in marketing efforts in India for bringing tourists to Israel.
Levin has spoken on more than one occasion about the economic importance of tourism as a national resource. According to the Ministry of Tourism, revenue from incoming tourism totaled $5 billion in 2017, with Tel Aviv being a prime destination for incoming tourism to Israel.
Levin also said that he believed that a large supply of hotels will lead to lower overnight prices in Israel, with an emphasis on the lack of rooms, mainly in the intermediate category.
Published by Globes [online], Israel Business News - www.globes-online.com - on March 25, 2018
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