Israel Offers Substantial Grants for Home Shelters to Boost Northern Communities

The Israeli government is offering significant financial incentives, up to 182,000 shekels, to private homeowners in communities located within 9 kilometers of the Lebanese border. This subsidy is contingent upon the commencement of planning and construction of a protected space, known as a "mamad," by the end of 2027. Those who begin construction in 2028 will receive a reduced grant of 132,000 shekels, the amount previously offered under an earlier iteration of the program for closer settlements.

The Ministry of Defense has recently opened applications for this expanded program, which is part of a broader government decision allocating approximately 7 billion shekels over a decade to encourage citizens to add protected spaces to their homes. Small investor groups are already incorporating this grant into their business models, envisioning purchasing half of a duplex in the north, building a "mamad" with state funds, adding one or two additional units on the property, and then renting out three apartments instead of one.

Two plans approved by the Northern District Planning Committee in Kiryat Shmona and Shlomi allow owners of existing attached homes to add one or two dwelling units to their plots. In some cases, this also permits the legalization of previously unpermitted construction. The primary conditions include a standard "mamad" for each unit, both existing and new, and a minimum unit size of approximately 55 square meters. Kiryat Shmona has the potential for about 3,500 new units, while Shlomi could see several hundred. A key distinction from national regulations is that in these two cities, new units can be registered and sold separately.

Nationally, Amendment 155 to the Planning and Building Law, effective in 2024, allows for the addition of units to existing properties without altering the main plot plan. This amendment mandates local committees to approve such additions by default, with limitations on size (up to 45 square meters including the "mamad"), requiring a separate entrance and kitchen, and offering a reduced betterment levy. However, separate sales of these units were not permitted, and the application window was limited, though it has been extended by decree. Owners considering this route should verify its current availability with their local planning committee.

Calculations suggest a net return of less than 5% before expenses for a property purchased for 900,000 shekels, with a monthly rent of 3,800 shekels. After accounting for vacancy, maintenance, management fees, and a mortgage limited to 50% of the property value at a 5% interest rate, the return on equity could be just over 2% before taxes. The "mamad" grant significantly covers the estimated 190,000 shekel cost, potentially making protected homes easier to rent. Adding a 55-square-meter unit with its own "mamad" for an estimated 600,000 shekels, rented at 2,800 shekels monthly, could yield a gross return of about 5.6% on the new investment, provided permits are obtained promptly and a tenant is secured.

Only about 15% of eligible individuals utilized the grant under the previous protection program, largely due to the gap between the subsidy amount and actual construction costs. This low uptake is a concern for the current demand, as thousands of new units in Kiryat Shmona and Shlomi could compete for tenants in cities that have lost residents during the recent conflict, with an uncertain return rate. The broader real estate market is experiencing price declines and a slowdown in transactions, with property sales in peripheral areas potentially taking months.