The global tourism industry is considered to be the fastest-growing industry, with an annual growth rate of about 5%, but despite the truth in the quote by the Late President Shimon Peres: “There are many oily lands but there is only one holy land”, Israel’s tourism industry is far from living up to its potential.

The water-treading and volatility that characterize Israel’s tourism and hotels industries are usually attributed to their dependence on the geo-political situation and the vulnerability of the sector to geopolitical tensions and, perish the thought, war.

Israeli hoteliers attribute the high prices of accommodation in Israel to excessive regulation of the industry which weighs on hotels operations, and also to the high cost of living in Israel which affects the operating expenses of the hotels.

Data from the Ministry of Tourism indicates that the average time for building a hotel in Israel is 10+ years (from land purchasing). One must also keep in mind that, in possible contrast with real-estate projects where some of the funding is provided through “virtual” sales prior to the commencement of the construction, this isn’t normally the case when building a hotel.

All of the above and numerous other factors have a dramatic effect on the construction and operating costs of hotels, and as a result on the entrepreneur’s ROI.

Over the past year, commendable legislation efforts were made in an attempt to handle these challenges. These legislation efforts are focused in two main channels: First, to expedite the planning processes for hotel projects, with the aim of increasing the supply of hotel rooms in Israel; second, to ease the regulation which concerns the operation of hotels.

In August 2016, Amendments 107 and 108 of the Planning and Building Law were published, and set a simplified and expedited planning program for projects of constructing hotel accommodation facilities, with the aim of shortening the planning procedures for hotel construction, which would lead, according to the bill’s explanatory text, to a development and investment momentum in the tourism industry.

The amendments are aimed at promoting tourism infrastructures in the framework of the Vatal (National Infrastructures Committee). “Tourism Infrastructures” shall include several alternatives, from a single project for the construction of at least 400 accommodation units in a single complex and up to projects for the construction of at least four hotel complexes across Israel or a certain region.

In order to expedite the planning processes, a temporary legislation was enacted under which a subcommittee for tourism plans would be established in every district, and its decisions would have the same validity as those of a district committee. In addition, in order to improve the projects’ feasibility and encourage entrepreneurs to build hotels, the amendments allow the conversion of part of a hotel-use lot’s building rights into rights to construct residential apartments that would be integrated into the project.

Alongside with these amendments, a series of actions for easing the regulation on the construction and operations of hotels was decided. This includes reviewing a switch to occupation-based city tax collection from hotels (in contrast with the current area-based calculation). If such a switch would be implemented, it would significantly reduce the operating expenses of hotels.

Other actions include loosening the regulations concerning the construction and operation of hotel pools and supplementary facilities, and also of the current standard that applies to the construction of sheltered rooms in hotels.

In order to bring to materialize Shimon Peres’ quote and achieve Israel’s enormous tourism potential, it is estimated that more than 15,000 new hotel rooms would be required. Such hotel rooms would increase the supply, reduce the cost of vacations in Israel and provide employment for thousands of workers.

There is still a long way to go, the procedures for promoting the regulation are advancing slowly, but the recent actions that were taken are praiseworthy and would hopefully bring new hope for Israel’s tourism and hotels industry.

 

Adv. Eitan Rothschild is a partner in Nathan Meir & Co., Advocates