The main benefit is a commitment by the government to purchase the apartments from the contractors
That they won't be able to sell on the free market. In this regard, in the specific contracts signed with the contractors, two types of projects were determined: the first type is projects in sought-after areas, where the marketing risk is not high, and therefore purchase commitments were given on behalf of the state only up to 50% of the apartments. The second type is projects in development areas, where the marketing risk is relatively high, and therefore purchase commitments were given on behalf of the state at a level of up to 100%.
Another benefit that was given to the contractors relates to the date on which they can demand that the government fulfill the purchase obligation. Here, too, a distinction was made between the two types of projects, where with regard to the first type (the requested areas) it was determined that it was possible to demand the realization of the undertaking upon completion of the construction of the building – at the end of stage 40 (section 6(b)(1)), while with regard to the second type (the development areas) it was determined that it was possible to demand the realization already at the completion of the construction of the skeleton and partitions – at the end of stage 18 (section 6(b)(2)).
We see that very significant benefits were given to companies building in development zones, of which the respondent company is a member, both in terms of the scope of the acquisition undertaking and in terms of the date of its realization. The purpose for which the aforementioned benefits were granted, as stated, was to encourage contractors to build massive construction of apartments, in the shortest period of time, while alleviating the contractors' fear of their inability to sell the apartments on the free market. Since this concern is greater in development areas, more significant benefits have been given to contractors building in these areas.
- However, there is no doubt that such a system of benefits and incentives also requires the creation of supervision mechanisms for those contractors and the establishment of "sanctions" that will ensure that the purpose of the aforementioned contract, which is to enrich the stock of apartments in Israel in the shortest possible time, is indeed realized. A central "sanction" was set out in clause 6(g) of the contract, which relates to apartments of the first type – "apartments purchased in accordance with clause 6(b)(1)" – and stipulates a reduction of 2% of the calculated price for each month of delay in the execution of the construction. An additional supervision mechanism is found in clause 6(h)(1) of the contract, which stipulates that in the event that the purchase obligation is realized after the end of the performance period, the interest will be calculated only until the end of the performance period. This section does not relate to a specific type of project, and it is generally agreed that it relates to both types.
The logic of this determination is that a contractor who wishes to try to sell his apartments on the free market can do so, but if he does not succeed and ultimately chooses to request the realization of an undertaking from the government, he will know that the interest on the determined amount will be calculated only until the end of the execution period and not until the date on which the purchase obligation was actually made.