ms & beyond the official tekla representative · marketing, sales & beyond more than just...

Marketing, Sales & Beyond

More than just marketing

Israeli Construction Market Trends & Growth Potential Analysis

MS & Beyond

The official Tekla Representative

Report was prepared by:

http://www.targo-consulting.co.il/

076-5454415

[email protected]

2 Habonim, Ramat Gan 5246206

http://www.targo-consulting.co.il/

mailto:[email protected]



MARKET OVERVIEW MS & Beyond growth potential and business success derives from the stability and prosperity

of the real estate market. Merrill Lynch devotes a large part of its survey to Israel's real estate

market, in view of the debate over the existence of a housing bubble. Merrill Lynch says

unequivocally that Israel's has no housing bubble, and compares Israel with other countries;

indicating that the housing prices in Israel have not risen as much as in other countries, and

Israel's mortgage market is safer than other mortgage markets. "The housing market in Israel

is not showing signs of overheating, in our view," says Merrill Lynch1. "Although housing prices

increased by almost 80% since 2007, a bigger picture view shows that housing prices in Israel

have lagged peer countries since 2000. Israel had a late start and still trails some countries".

The general consensus is that there isn’t enough supply for all of the demand; with low interest

rates, and many Israelis that agree to purchase houses even if they are above their normal

price level. On top of this, favorable regulations and guidelines spike foreign demand for Israeli

property. All of these elements are factor into the strong housing market that has proven to be

nothing short of an unbelievable investment in recent year2.

MS & BEYOND VISION MS & Beyond intends to seize 80% market share in the local market, providing the highest

levels of service and maintenance, allowing them to benefit the advantages of Tekla's ENG,

CIP and STD software modules and achieve high work efficiency and increase in capacity to

obtain new projects. By operating a local service and maintenance branch, and allowing

Hebrew assistance, MS & Beyond is able to overcome major objections of its potential clients.

MARKET ANALYSIS The increase in government initiated marketing is expressed as an increase in housing starts

on State land that reached 50% in the second half of 2011 compared to 45% in 2010, an

increase in construction investment and investment in public construction and an increase in

the relative number of housing starts from public initiative to more than 16% of the total in

1 Published in Globes (Financial Newspaper), on 4th of November, 2013, in an article on housing prices in Israel. http://www.globes.co.il/en/article.aspx?did=1000891037 2 Published on Haaretz, analyzing government policy on housing. http://www.haaretz.com/business/real-estate/.premium-1.552172

http://www.globes.co.il/en/article.aspx?did=1000891037

http://www.haaretz.com/business/real-estate/.premium-1.552172

http://www.haaretz.com/business/real-estate/.premium-1.552172



2011 compared to only 12% in the previous two years3. This initiative is expected to bring an

increase in sales in 2012 in light of the increase in marketing and housing starts.

Housing starts initiated by the Ministry in 2011 originated mainly from marketing at the end of

2009. As a result of the extensive marketing in 2010 and 2011, it appears that a higher pace

of housing starts, at least in the next two years, is expected.

Contrariwise, the main causes which influenced the moderation of demand during 2011 and

especially in the second half of the year were measures taken by the Bank of Israel in the area

of interest rates – the lagged impact of the increase of interest rates from 2009 through the

first half of 2011, limitation of credit in variable interest rates for one-third of the total loans in

May 2011, expectations of moderating housing prices and the social protest. However, at the

end of 2011 a change was evident and there was a rise in demand relative to the months of

August to October. In parallel the local market has experienced a distinct continued decline in

the unemployment rate and a rise in the rate of participation in the workforce despite the

slowdown in economic growth.

Supply Drivers4 › Marketing – The scope of marketing by the Ministry of "Housing and Construction" and

the "Israeli Lands Authority" are through public tenders as well as in additional

frameworks reached sales of about 37,200 housing units in 2011. Approximately 9%

higher than the scope of the previous year and about 44% higher than in 2008

(25,800). The marketing volumes in 2011 were the highest since 1997.

› Housing Starts – The amount of housing starts in 2011 reached approximately 44,000

housing units, compared with 40,000 in 2010 and 35,000 in 2009 (in the years 2001-

2008 there were only 32,000 housing unit starts). In the last quarter of this year there

was a relative decline.

› Privately initiated Building Permits reached 36,000 in 2010, and based on estimates

for 2011 the magnitude will be similar; this is a significant increase compared to

previous years (about 23,000 to 30,000 in the years 2000-2009). However, it is evident

that the second half of 2011 showed a slowdown in the volume of permits issued

(yielding an annual rate of 33,000).

3 Based on Dun & Bradstreet Israel Ltd analysis of the Israeli construction market as published in 2012. https://duns100.dundb.co.il/ts.cgi?tsscript=scriae&category=104 4 Developments in the Construction Industry and Ministry of Construction and Housing Activities, March, 2012, published by the Economic Analysis and Information Division in the Ministry of Construction and Housing.

https://duns100.dundb.co.il/ts.cgi?tsscript=scriae&category=104



› The number of dwellings under construction continues to rise and has reached close

to 80,000 at the end of 2011; this is a peak in increase since June 1999, 14% higher

compared to the end of the previous year. The increase in housing construction is

particularly striking since mid-2009.

› The supply of new dwellings for sale (of dwellings whose construction has begun)

continues to rise rapidly to about 20,000 units in January 2012 (of which 5,500 are

from public initiative) compared to about 15,000 at the end of 2010. This is an increase

of about 32% which comprises an addition of 5,000 housing units.

› Encouraging the sale of investment properties – during 2012 an increase in the supply

of dwellings available for investment purposes is expected in light of legislative reforms

which included an increase in Betterment tax exemptions until the end of the year and

more stringent eligibility conditions for exemptions for selling investment apartments

starting in 2013.

Demand drivers › The interest rates of the Bank of Israel dropped by 0.75 accumulated percentage points

from October 2011 and reached 2.5%. This points to a changing trend in rising interest

rates which began at the end of 2009 when interest rates stood at 0.5%. The decline

in interest rates results, among other things, from signs of local economic slowdown,

the danger of financial crisis, global recession and a lowered inflation environment.

The Bank of Israel interest rate affects the free interest rate of housing loans (with

lagging influence) and was one of the main reasons for the rising costs of housing in

2009 and 2010 and their leveling off in the second half of 2011. The recent decline in

interest rates helps to improve the demand for the purchase of apartments.

› Upon implementing new housing loans a decline of about 45 billion NIS in 2011

compared to about 48 billion NIS last year is evident. The decline sharpened with each

quarter in 2011 from 12.8 billion in the first quarter to about 8.5 billion in the last.

› The scope of housing transactions (new and previously owned dwellings) showed a

significant moderation which was evident in 2011 and throughout all quarters of the

year. The total volume of transactions reached about 86,400 compared to more than

100,000 in the two previous years. Since November 2011 an improvement in the scope

of transactions is evident compared to the slump seen in the three previous months.

› This decline is particularly evident in new housing transactions whose relative weight

of the total number of housing transactions decreased to about 22% in 2011 compared

to about 24% in the previous two years.



› Decline in the number of new dwellings sold – in 2011, 19,200 new dwellings were

sold (about 1,600 monthly average) compared to 22,700 in 2010 (a decrease of about

15%). Very low volumes were recorded during August to November 2011 (an average

of 1,220 monthly). In December 2011 and January 2012 there was an improvement

(1,970 monthly average).

› Construction for Own Use – the number of housing units for ‘construction of own use’

in 2011, reached about 19,000 housing units, an increase of 8% from the year before

of about 17,500 units. In the last quarter of 2011 the scope was relatively low.

› A decrease in homes purchased by investors – from Treasury data processed by the

Economic Analysis and Information Dept. of the Ministry of Construction and Housing,

it was found that in 2011 about 21,000 apartments were purchased for investment, a

decrease of 30% in comparison to the previous year. In the last quarter of the year

about 4,500 homes were purchased, a decrease of about 51% compared to the

corresponding quarter in the previous year, which was characterized by an especially

high volume of purchases. The proportion of apartments purchased for investment in

2011, stood at about 25% of total transactions.

› Decrease in the rate of GDP- in the second half of 2011 the increase in the rate of

GDP slowed down to 3.6% in the annual calculation compared to 5.3% in the first half

of the year and 5.8% in the second half of 2010 (in 2011 a quarterly decline began

from 4.8% to 3.2% at the yearly product growth rate).

› Decrease in the Capital Market Value in 2011 amounted to about 18% in the Tel Aviv

25 index, which reflects expectations of economic activity, reduces the public’s savings

and sense of wealth and consequently the demand for apartments. Raising the tax

rate on capital market gains to a rate of 25% from the beginning of 2012 (instead of

20%) creates some benefit to purchase investment dwellings as an alternative

investment to capital marketing.

MARKET SIZE

Construction starts in Israel The high-level of activities in the building sector continued in 2011, with about 9% growth in

output according to the Bank of Israel (in 2005 prices) – slightly down from 2010 levels.

Activities in the sector showed a rise in building starts and the number of apartments currently

being built, although there was no rise in the number of apartments completed5. The sector's

5 http://www.haaretz.com/print-edition/business/the-pendulum-of-the-real-estate-market-1.407540



growth in activities led to a 2.6% rise in the rate of jobs to about 229,000 employees. According

to VAT data, 2010 turnover in the sector was NIS 112,684 million and included 45,158

employees.

Housing Index in Israel6 increased to 2020 SQ. METRE THO in the third quarter of 2013 from

1703 SQ. METRE THO in the second quarter of 2013. Housing Index in Israel is reported by

the Central Bureau of Statistics, Israel. From 1991 until 2013, Israel Construction Starts

averaged 1672.2 SQ. METRE THO. In Israel, Housing Index is measured by the total area of

residential buildings started7.

Land Supply According to an estimate of fair value published by the Israeli government in its 2011 financial

reports, the value of government-held today stands at about NIS 304 billion for 4,031,000

acres. The total value of available land amounts to NIS 290,717 million for 3,050,000 acres.

The value of the remaining land is NIS 12,972 million amounting to 990,500 acres. Occupied

land represents 24% of the State's total land, that is to say 76% of land in Israel is not

populated or zoned for use that is not residential. This reduces pressure on areas of demand

by developing rural areas, and promoting populating it by rezoning agricultural areas, and this

should help lower apartment prices, which have seen an upward trend in recent years.

6 http://www.tradingeconomics.com/israel/housing-index 7 The data regarding the construction market in Israel relates to 2012. The index that includes 2013 data is expected to be published on April-May 2014.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2008 2009 2010 2011 2012

Annual Buildout in K sq. meters

Series 1



Residential Construction The annual target set by the government for marketing land for residential construction was in

the publication of tenders for 25,000 housing units, in addition to deals exempt from the tender.

Thus total annual supply will stand at 35,000 housing units per year8.

In order to meet government targets, the Israel Land Administration is locating plans approved

by committees and works to increase marketing by removing obstacles, redemption rights and

land zoning changes.

The amount of land marketed amounted to 37,200 housing units in 2011. This was 9% higher

than 2010, and 44% higher than 2008 (25,800). In February 2012, the Ministry of Housing

announced the marketing of 3,800 housing units so that prices would continue to fall in Israel.

According to Housing Ministry figures, the number of residential building starts in 2011 totaled

about 45,000 housing units, up from 40,000 in 2010. In 2011, the rate of building starts slowed

as demand and the number of deals in the market fell, and the trend in the slowdown in building

starts continued into Q1 2012. On the other hand, the inventory of unsold new homes in

January 2012 reached about 20,000, reflecting a 32% rise from December 2010. The

inventory of homes for sale recorded a slight rise during the quarter and amounted to 20,653

homes at the end of April 2012. In addition, the aforementioned inventory, land was marketed

8 http://www.cbs.gov.il/reader/yarhon/yarmenu_e_new.html

208

3,612

79

27

82

11,884

115

116

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Residential Agricalture Industrial & Commercial Other

Land by Sector & Availability (Dunams)

Occupied Vacant

http://www.cbs.gov.il/reader/yarhon/yarmenu_e_new.html



for 17,000 housing units that had rights but where construction has yet to begin. As of the end

of 2011, there were 80,100 housing units in Israel under construction – the highest number

since June 1999. In total, 19,000 new apartments were sold in 2011, 16% less than 2010. The

slowdown in the expansion of the construction market was also reflected in second hand sales

in the apartment market. According to Finance Ministry data, in Q1 2012 the drop in the

number of deals was halted, after four consecutive quarters of falls, but the number of

apartments sold in the quarter, 22,200 was 15% lower than apartments sold in the

corresponding quarter of 2011. The fall in demand alongside the rise in inventory led,

according to the Finance Ministry figures, to an accumulative price fall of about 12.9% in new

apartment prices in Q1 2012 compared with the corresponding quarter of 2011.

This trend change in prices and demand in the housing market, despite the continuing gap

between the growth rates of households for housing supply, relates to the joint activities of

several factors. The first is the slowdown in the rate of growth in Israel and the change of

economic sentiment due to the social awakening that revolved around the cost of living and

affordable housing and supported a cooling off in the market. The measures taken by the Bank

of Israel to restrain demand for apartments touched investors on the one hand, while on the

other hand macroeconomic measures were taken in the mortgage sector. Among the

measures to reduce the attractiveness of apartments for investment was the increase in

purchase tax for buying apartments as an investment, an exemption from betterment tax on

the sale of two apartments for investment by 2012, and extending the holding period for a

betterment tax exemption. In apartments purchased by investors alongside apartments

purchased for returns on the asset, there are also apartments purchased for leisure of residing

in for short periods and stand empty for most of the year.



Non-Residential Construction In 2011, non-residential building starts totaled 2,623,000 square meters, up 6% from 20109.

This higher rate of growth was recorded in the industrial segment where building starts rose

34% and totaled 573,000 square meters, up from 427,000 square meters in 2010. The higher

rate of growth in finishing building area was recorded in the accommodation, trade and

business services segment, which rose 15% compared with 2010. The volume of building

finishes in the segment was 611,000 square meters, up from 533,000 square meters in

2010. Income-producing real estate companies in the office and commercial sector expanded

development projects in 2011 in which they are involved after a number of years of slowdown

in their development plan. During 2011 the commercial sector stability in demand despite the

social protest. Main assets continued to see high demand and occupation rates in prominent

commercial centers stood at almost 100%. The entrance of international chains to Israel's

commercial centers added to the rise in traffic of buyers and turnover. In the competitive

environment of commercial areas two groups stood out – Azrieli and Melisron, which recently

acquired control of British-Israel. Eight of Israel's ten biggest malls are owned by one of these

two companies. Although the commercial sector is one of the most stable, and particularly

malls, Israel's slowdown in growth raises concerns that this area too will suffer in the coming

year from a certain slowdown following increased uncertainty that will affect consumer

confidence. The offices sector also continued to show growth in 2011 despite the level of

9 http://www.cbs.gov.il/reader/yarhon/yarmenu_e_new.html

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012

Begining of Housing Constructions (Units)

Series 1





prices and relatively low occupancy compared with the level before the crisis. As in the

commercial space sector, the main concern is that the slowdown in growth in the business

sector might lead to a rise in the level of risk in the field and put pressure on lowering of rents

alongside a fall in occupancy.

0

100

200

300

400

500

600

700

800

900

1000

2008 2009 2010 2011 Q1 2012

Begining of Constructions (NR) in K meters

Agriculture Public Industry Commercial

0

100

200

300

400

500

600

700

800

2008 2009 2010 2011 Q1 2012

Completed Construction (NR) in K meters

Agriculture Public Building Industry Commercial



MARKET TRENDS Decrease of unemployment rate to 5.6% in 2011 compared to 6.6% in 2010 and 7.5% in 2009.

The decline is pronounced during the first quarters of 2011 (from 6.0% in the first quarter to

5.4% in the last). The rate of participation in the workforce showed a minor increase and

reached 57.4% in 201110.

State income from Real Estate Tax amounted to 7.3 billion NIS in 2011; an actual increase of

7% compared to the previous year. However, low volumes are evident since August 2011

compared to previous months in 2011 (516 and 674 million NIS monthly average,

respectively). The growth compared to the previous year resulted from additional collection for

transactions from previous years and the slowdown later in 2011 was influenced by the decline

in demand.

Employees in the Construction Industry – The average number of Israeli residents employed

in the construction industry in 2011 came to about 162,500 compared to 157,000 during the

previous year. The pronounced increase in the number of Israeli residents employed in

construction in the last decade is influenced by the decline in the number of foreign workers,

and in the last two years, by the increase in the volume of activity in this sector, especially in

residential construction. At the same time and due to increased demand for workers, there

was an increase in the average wage per employee in the industry to about 86% of the average

wage in the general economy compared to about 83% in 2007 (for Israelis only, about 90%

compared to 86% in 2007). In the construction industry there was an increase in the number

of job vacancies from about 8,000 at the end of 2010 to 12,000 at the end of 2011. In the “wet

work” (actual construction work) alone there was an increase from about 3,000 to 6,000

vacancies, respectively).

Affordable Housing and Assistance to those with Eligibility – The marketing increase also

focuses on designated populations and those lacking housing. Recent decisions include

promoting construction projects for renting in two tracks, while offering a discount on the land

(tenders are expected shortly in Modiin, Ra’anana and Kfar Saba, and among other places as

well). At the same time, there is a plan to market land to build student dormitories by allocating

land without payment. Additionally, the Ministry is operating a project within the framework of

‘specially reduced apartment prices’; for people who fit into special criteria categories and who

10 http://www.marketresearch.com/Business-Monitor-International-v304/Israel-Real-Estate-Q2-8034673/

http://www.marketresearch.com/Business-Monitor-International-v304/Israel-Real-Estate-Q2-8034673/

http://www.marketresearch.com/Business-Monitor-International-v304/Israel-Real-Estate-Q2-8034673/



do not own apartments. Decisions taken by the Israel Lands Council include new criteria for

allocation and require the construction of small apartments that include land discounts.

Within the framework of ‘assistance for the eligible’, as of July 2011 there is a ‘Grants and

Subsidy’ development program for purchasing new apartments in approximately 28

communities in the periphery. The program includes a conditional grant of 60,000 NIS and an

increase of subsidies for land development. The Ministry is working to increase marketing in

these communities.

MARKET BARRIERS & RISKS On the side of macroeconomic stability, due to the rise in mortgage takers at the start of 2011,

as of May the loan component of variable interest was reduced to one third of the loan. Another

aspect of the cooling off in the market was the rise in the interest rate from 2% in January to

3.25% in June 2011.

From June through the end of Q1 2012, there began a gradual fall in interest rates to a level

of 2.5% in June 2012. At the same time as the return of the social protest, new apartment

sales began recovering although the sales volume was still low compared with the

corresponding quarter of 2011. The slowdown in building starts, in deals for new and second

hand apartments, and the slowdown in the growth rate in the market, led in recent months to

a worsening of the situation of deals by service givers and suppliers in the sector such as

various types of contractors, electrical contractors, infrastructures, building inputs retailers and

wholesalers. There was also a worsening in the situation of tangential businesses to the real

estate sector such as kitchens and furniture.

195

200

205

210

215

220

225

230

235

2008 2009 2010 2011

Number of Employees (K)

Number of Employees



Alongside the forecast of a rise in risk to businesses in the sector and the circle of service

providers and suppliers in 2012 following a moderation in demand, there is a rise in concern

that in the wake of difficulties in raising credit by contractors, and the continued slowdown in

building starts, the unsold apartments inventory will be eroded, and lead to a return to price

rises of apartments for sale.

FINANCIAL POTENTIAL The Israeli Market has ~600 engineering offices that employ over 2,500 engineer who are

potential users. Local sales palisade can be easily overcome when and if MS & Beyond can

offer Hebrew tutoring and service. Most of the local engineers lack the fluency in English, and

tend to object any new software that requires them to straggle with the language and software

features as well. We experience these concerns on a daily basis, and strongly believe that

local maintenance can provide the necessary reassurance that will facilitate growth in sales to

Tekla and smooth to local engineering firms.

Commission Structure Commission structure is detailed in following chart:

MS & Beyond will pay Tekla 70% of price of software module and/or maintenance fee and will

be invoiced accordingly. All payments to Tekla will be pro-rata to clients' payment terms,

following Tekla's preapproval to payments schedule.

Module Price Maintenance Fee Commission Net to Tekla

STD £10,600 £2,100 £3,840 (30%) £8,960

ENG £4,400 £950 £1,605 (30%) £3,745

CIP £7,100 £1,410 £2,553 (30%) £5,957

The following Chart demonstrates how local maintenance for all modules can dramatically

increase sales and obtain a significant market share.



ENGINEERING COMPANIES REVENUE VOLUME The average charge for designing a plan is estimated at £4.2 for a square meter. The following

chart analyses the engineering market earnings11. Add numbers and explain currently only on

STD market for industrial and now going to penetrate the CIP market residential – large

market, yet untouched. Needs available service.

11 Most of engineering companies are private, therefore, no available and reliable information to enable

market segmentation.

£7

4,2

00

£7

4,2

00

£3

7,1

00

£3

7,1

00

£3

7,1

00

£3

7,1

00

£1

4,7

00

£1

4,7

00

£3

6,7

50

£7

,35

0

£7

,35

0

£7

,35

0

£1

7,6

00

£1

7,6

00

£6

1,6

00

£6

1,6

00 £

92

,40

0

£9

2,4

00

£2

,66

0

£2

,66

0

£1

8,6

20

£1

3,3

00

£1

9,9

50

£1

9,9

50

£2

9,8

20

£2

9,8

20

£2

9,8

20

£9

9,4

00

£1

49

,10

0

£1

49

,10

0

£5

,92

2

£5

,92

2 £3

1,5

84

£1

9,7

40

£2

9,6

10

£2

9,6

10

£1

44

,90

2

£1

44

,90

2

£2

15

,47

4

£2

38

,49

0

£3

35

,51

0

£3

35

,51

0

Q 3 2 0 1 4 Q 4 2 0 1 4 Q 1 2 0 1 5 Q 2 2 0 1 5 Q 3 2 0 1 5 Q 4 2 0 1 5

Revenue Forecast (70% of price)

STD Maintenance ENG Maintenance CIP Maintenance Total



MS & BEYOND STATUS & OFFERING Currently MS & Beyond has sold 30 licenses. Only 20 of them utilize the service and

maintenance program, the latter also use old versions of the software modules due to the fact

that they are not entitled to free upgrades. We offer advice and basic assistance to our clients,

although it is not part of our engagement agreement with Tekla. In order to be able to service

our clients and be applicable to many more, we need to set up a local maintenance branch.

The potential to increase sales exponentially is actual due to the fact that local market behavior

is characterized by a pressing need to provide the engineering plans in a short time.

Constructors apply pressure on the firms to deliver instantly or else they would use the

competition. Tekla's software enables to multiple productivity without recruiting additional

workforce; that alone is a sales incentive. Our sale process requires 2 meetings, mail

correspondence and we estimate a period of 2-3 month from initial phone call to final sale and

payment.

In order to establish our service and maintenance division in Israel, we will employ one

technician, considering a 1:50 ratio (20 clients cover cost of technician). MS & Beyond is willing

to finance the translation, and adaption of software modules to local market, providing we get

access to source code. We also require to become an Enhanced Agent for Tekla's products.

In order to enable MS & Beyond to seize a significant market share in the residential market,

which constitutes 79% of the total build out market. The engineers servicing the market will be

utilizing the CIP module that currently needs modifications in order to be applicable for

£39,480,000£8,610,000

£2,406,600

Engineering Market Revenue 2012

Residential Commercial Industrial



effective use. Without completing this task by Tekla, MS & Beyond will have to continue with

the industrial buildout market, that deploys the STD module, but constitutes only 17% of the

market. We have to point out the importance and the immediacy of that task. It will be

inopportune to miss this prospectus potential that is latent in this market. Engineers servicing

this market will acquire the module providing they have local maintenance and Hebrew

support.

Management Yosef Lifshitz, is a seasoned sales and marketing executive with over 15 years of hands on

experience in market penetration for new products and increasing market share. He strongly

believes in high quality service and implements these standards in his current business. He is

a client oriented professional that pursuits maximum client's satisfaction. Company offices are

located in the lucrative industrial zone in Hertzlia. The company assists its current clientele in

communicating with the British Maintenance Office, in order to ensure the high standards of

service.

ms & beyond the official tekla representative · marketing, sales & beyond more than just...

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