Last week, the Ministry of Construction and Housing issued a call for foreign construction companies to carry out residential construction work in Israel. The purpose of the move is to expand the number of companies operating in Israel - construction companies that come to Israel with their employees, from junior to senior level, and implement projects with their own organic teams.
The current move, which is intended to further increase the scope of the foreign workforce in Israel’s construction industry, is different from the efforts to bring workers from abroad that has been underway since the start of the war in a particularly unsuccessful way. As part of that plan, workers come individually to the building sites of Israeli construction companies.
The publication of the call has drawn great anger from Israeli developers and contractors. Israel Builders Association president Raul Srugo last week told the Magdilim website annual real estate conference, "This could be the death knell of our industry." Srugo said the government is divorced from reality, and sarcastically suggested replacing the government with a foreign government. But do the contractors really have anything to worry about? Could more foreign construction companies really push them out?
The numbers: 96,500 apartments in six years
According to data provided to "Globes" by the Ministry of Construction and Housing, 11 foreign construction companies are currently active in Israel’s building industry, most of them from China, and one from Turkey, which is perhaps the best known: Yilmazler International, which participated, among other things, in the construction of the new control tower at Ben Gurion Airport, Sarona Azrieli Tower and YOO in Tel Aviv and the famous solar energy tower in Ashalim. These 11 companies currently employ 9,200 people. In the database for these foreign companies, 13 companies are actually registered, but two of them are not active, even though they hold a license.
The ministry's data show that from the end of 2017, when the foreign companies actually started working in Israel, until the end of the first quarter of 2024, they completed 274 projects in the residential sector, including 96,509 new apartments. The annual average of these companies is the construction of 17,500 apartments. Alongside this, there are currently another 180 active projects in progress, which encompass 33,120 new apartments.
Central Bureau of Statistics figures show that since the beginning of 2018 until the end of the first quarter of 2024, construction of 327,020 homes was completed in Israel, although the final number could be slightly higher. Thus, the data indicate that foreign construction companies have delivered 29.5% of the apartments built since the beginning of 2018.
The contractors: We dance to the tune of the state
Kata Group owner Gil Kata says, "It is clear that this initiative will harm Israeli construction companies. "Not only can this come at the expense of our projects, it also means that our senior employees will be without work. After all, above the junior employees, the wet work workers, there are engineers and more, most of them Israelis. If entire companies come from abroad with their employees, then we will not need our more senior employees. These are 150 of my employees, who can just go home.
In the meantime Israeli building companies have become manpower companies
While the government is struggling to bring in a large number of workers from abroad to replace Palestinian workers who are not allowed to enter Israel, many Israeli building companies are striving to shorten the process by obtaining permits to bring in workers from abroad themselves.
Kata says, "In the State of Israel at every moment something changes. During nine months of war, the contractors have already changed direction three times due to the lack of workers. Until you build something - it becomes irrelevant. We dance to the country's tune, which changes all the time."
"The Israeli building companies have something to fear if more foreign building teams enter here," says Adv. Zvi Ken-Tor of the Akko-based Ken-Tor law firm, an expert on migrant workers. "The foreign companies can have a great influence on the industry, depending on who they will be and where they will come from, and with what capabilities - but while the concern of the building companies is understandable, these companies can only help the developers. The problem is that today quite a few development companies in Israel are also building companies, and vice versa, and thus conflicting interests are created.
"From past experience we can learn that the vast majority of workers in these companies are employees with seniority and experience, who know how to work together and talk to each other - because the whole 'chain' reaches Israel, from the engineer, through the foreman and team leader to the junior employee. When everyone knows how to work with everyone, it is possible to achieve good results and it can also contribute and upgrade the industry, certainly if companies using advanced construction technologies come. If they bring low level workers, like many of those brought by the state since the beginning of the war, it will take the industry backwards."
The aim: "Not to restrict it to only resident construction"
The new call by the Ministry of Construction and Housing aims to add up to 10 new companies to the database of foreign construction companies, with permission to build in Israel for five years. The criteria they must meet includes: annual revenue from activity in residential construction of at least $100 million dollars: construction equipment worth at least $1 million dollars; debt-to-equity ratio of up to 60%, for a company with annual revenue of up to $450 million and a debt-to-equity ratio of up to 80% for a company with revenue of more than $450 million - on average per year in the two years preceding the submission of the offer; and execution and completion of at least ten projects, of at least 8,000 square meters in each project, in the six years preceding the submission of the proposal.
The call limits companies that file an application to be included in the database to the residential field only and on this says Adv. Ken-Tor says, "The first call was initially limited only to residential, and later broadened to other areas, among other things due to Covid related constraints. I don't think it makes sense to limit these companies only to building homes. if all foreign companies work in housing, then Israelis will move to commercial real estate, offices and public projects, and this is an unhealthy situation. I think it is important to establish that these companies can operate in all the fields".
Ministry of Construction and Housing director general Yehuda Morgenstern said "The outcry from the contractors, as far as I'm concerned, is on the spectrum between far-fetched and very puzzling. We all understand and know that from October 7th there has been a severe shortage of working hands, and along the way we have created a basket of solutions to shorten the processes. We all see how long it takes us to bring in foreign workers through bilateral agreements, which is the direct route, so companies that can bring here 1,600 workers each, at once, can contribute a lot to the industry and stimulate it. "There are currently about 173,000 housing units under construction, building starts have not declined significantly, and when the war ends, hopefully soon, we will be freed up for both work in reconstruction and construction work. We will add to this the fact that even before the war we estimated at the ministry that there was a shortage of 25,000 foreign workers and the conclusion is that we are very far from reaching the quota of foreign workers, and we will need many more working hands. That is why I strongly reject the statements by the contractors. We, as a country, are not satisfied with the easy solution, but rather create a mix to create functional continuity for the real estate industry.
Published by Globes, Israel business news - en.globes.co.il - on July 21, 2024.
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