The developer promised a large apartment and now wants to cut back: when is a reduction in consideration justified?
Real estate appraiser Shmulik Cohen analyzes the wave of developer requests to reduce consideration in urban renewal projects, against the backdrop of rising construction costs and a market slowdown. Cohen estimates that 50%-60% of complexes are dealing with this issue, and explains when the reduction is justified and when it is an attempt to improve the developer's position at the expense of apartment owners.
Real estate appraiser Shmulik Cohen addresses the wave of developer requests to reduce consideration in urban renewal projects, against the backdrop of rising construction costs and a market slowdown. Cohen estimates that 50% to 60% of complexes where a commercial agreement has been signed are dealing with this issue. According to him, about half of the requests stem from over-promises made to apartment owners from the outset, without sufficient financial scrutiny. The other half stems from a rise in construction costs of about 15%-20% over the past two years, along with a gap between expected revenues for developers and the reality of the housing market. Cohen presents examples from projects in Jerusalem and Tel Aviv where a reduction was found to be justified or where the request was excessive. Nir Shmul, CEO of the Company for Urban Development and Renewal, emphasizes that a signed agreement should be honored, and that a drop in housing prices or an increase in financing costs are not sufficient reasons for a reduction, unless there has been a substantial planning change.