Renovation contractors constitute a sub-division in Israel’s construction industry. Real estate property renovations are performed for maintenance reasons, alteration of object, or betterment of it. Real estate maintenance is required in order to avoid depreciation in value. Market potential stems from the amount of existing real estate in Israel (apartments, business establishments, office buildings, etc.) and grows according to yearly increase in existing real estate. Remodeling and construction expansion contractors who have met all requirements are registered with the Registrar of Contractors. In addition, there are hundreds of unregistered contractorss, but no action is taken to stop their activity as long as they are only operating under financial restrictions (currently up to 30,000 NIS )
Renovation contractor activity can be divided into two main professions:
- Regular maintenance, which includes periodic painting and whitewashing, electric work, plumbing, etc.
- Occasional work for various needs such as improvement, expansion, and alteration of purpose. These jobs are usually more complex; they require a longer period of time, planning, and alteration of the construction, and occasionally reconstructing or adding parts of it.
Construction in general and remodeling specifically are fields abundant with work, and require both professional and non-professional workers.
Professionalism among contractors varies. High-level contractors and professionals are active alongside unlicensed contractors, who usually carry out low-quality work.
The industry is regulated by ordinances and requires registration. However, most active contractors are not licensed as required by law.
A renovation contractor may be defined as one of the following:
- Key/Primary contractor- contractor responsible for performance of all construction types at the site, responsible for customer communication and hires sub-contractors according as needed. Usually an engineer or practical civil engineer.
- Sub-contractor- specializes in a specific field of occupation.
Customers: Defining the Target Market and Its Size, Market Segmenting
The industry’s customers can be segmented according to a number of parameters.
Private customers conducting renovations in an apartment they own, organization customers (including residency companies), or corporate customers holding various types of real estate for private use or as profitable assets. The industry is primarily operated by quotation.
Organization/corporate customers own various types of constructions. Common types include: Residence, industrial, office buildings, and commercial structures. These structure types differ in usage and engineering specifications, such as quality and construction standard, load abilities, etc. These specifications have repercussions on construction work from the materials, tools, and planning aspects. Quotations are customary for occasional work, and tenders for more complex work.
The industry is abundant with contractors, and therefore is highly competitive. When analyzing competition, a distinction should be made between tender work and private work.
A renovation contractor requires 2 types of vendors: Tools, materials, and sub-contractors.
- Creating alliances with architects, designers, or hardware stores who mediate between customers and contractors. In this method, reputation and familiarity hold a crucial role to initial contact with the customer. Quality and credibility will ensure long-term relationships with customers.
- Yellow page registration and using direct marketing or distribution of flyers.
- The tender market is an important part of the construction industry. Ministries, government companies, and local authorities are required by law to hold tenders. Private organizations and other companies also occasionally hold tenders although they are not required to do so by law. In order to participate in a tender, a contractor must be registered with the Registrar of Contractors. Tenders are advertised in daily newspapers, government offices, and special publications.
- Displaying prominent signs on vehicles and at construction sites.
- Word of mouth by satisfied customers. Reputation, credibility, and quality directly affect this resource.
Future Development Options
The industry is developing in accordance with transitions in the Israeli construction industry. As new structures are erected, existing structures become antiquated on the planning aspect. Physical depreciation is created as the buildings become older, or if they have not recently been renovated.
However, a deceleration in the construction industry may cause some of its potential clients to decide on renovation in place of a move.
The construction industry is labor intensive; both for professionals and non-professionals, and a number of specializations are in effect: Floorers, plumbers, iron benders, plasterers, electricians, and non-professional workers.
Employment can be arranged on a daily basis, or a more permanent, monthly basis. Cost of a day’s work ranges between 150 to 600 NIS per day, directly dependant on the worker’s occupation and professional level.
Industry Revenue and Profitability
Two costing methods are customary for various work methods, as detailed below.
- For some jobs requiring the participation of a sub-contractor, the primary contractor’s quote will be 10-15% over the sub-contractor’s quote.
- For jobs conducted solely by the contractor and his team, costing will be calculated by multiplying cost of work, including salaries, materials, and safety coefficient by 1.3-1.5.
- Both methods should take into account financing costs.
Typical Terms of Payment:
There are no uniform payment terms, but an advance is customary in order to fund purchase of materials. Continual payment will be conducted according to execution of the project. Final payment will only be presented when the job is completed. Tenders usually specify payment terms according to the project’s expected rate of progress.
As financing costs, especially for long-term projects, are at least partially imposed on the contractor, vendors sometimes allow for longer credit terms as well. This credit is usually allotted to regular customers purchasing large quantities. When purchasing small quantities of materials, customary terms of payment are EOM+60 to EOM+90.
Licenses and Certifications:
A renovations contractor conducting jobs over 30,000 NIS (per job) is required to register with the Registrar of Contractors as a licensed contractor (sub-industry 131). Registration requires two years of proven experience for civil engineers or architects, 5 years for practical engineers or technicians, and 6 years for foreman. In addition, the Registrar may examine knowledge and professionalism. Regularly employed contractors can, under some circumstances, allow the employing company to use their experience in order to register.
In order to register as a sub-industry contractor, there are additional requirements, among them, more experience.
Receiving permits for foreign employees involves filing an application with employment services with a duplicate sent to the Contractors' organization.
No local authority license is required.
For some sub-industry occupations (such as electric work), a specific license is also required.
- The Registrar of Contractors- Ministry of Construction and Housing, government building area, Eastern Jerusalem. Phone: 02-5847201.
- Construction and Builders’ Association in Israel, Mikvah Israel 18, Tel-Aviv PHONE: 03-5604701.
It is recommended to confirm all permits in advance, to work according to required standards, and receive authorization from appropriate bodies.
Meticulous attention should be paid to schedule planning and correct management of the work process for more complex jobs. Deviating from schedule affects both customer satisfaction and funding of the construction process. Sometimes there are high fines to pay for deviation from schedule.
Profitability of equipment purchase should be examined often according to frequency of use, as some equipment may be rented.
Note that the quality parameter is crucial to building a reputation. Strictness regarding this parameter will also prevent the need for repairs and reconstruction.
It is recommended to consult with your local Business Development Center regarding business establishment and operations.
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