Around 46 per cent of buyers are willing to pay a premium to lease space in a certified green building as compared to 51 per cent globally
The International Finance Corporation (IFC), a member of the World Bank, in its report released late last year offered a ray of hope amid the threat posed by climate change. It pointed out that by 2030, in emerging markets like India alone, green buildings will offer a $24.7 trillion investment opportunity, which will spur economic growth and accelerate sustainable development.
The study further said that green buildings can be a strong driver of economic growth, generating upwards of nine million skilled jobs in both the renewable and construction sectors by 2030. Currently, green buildings account for just eight per cent of the construction and renovation sector, indicating a vast potential for growth.
“The floor area of the buildings that dot our skylines is expected to double by 2060,” noted Alzbeta Klein, Director of Climate Business at IFC. “Green construction is one of the largest investment opportunities of the next decade that can spur low-carbon economic growth and create skilled jobs for decades to come.”
India is no exception and the IFC estimates a $1.4 trillion opportunity for the country. A whopping $1.25 trillion in the residential sector and $228 billion in the commercial one, given that buildings in the two segments account for 30 per cent of the energy consumption, which is expected to zoom to 48 per cent by 2042. It is estimated that India will have a shortfall of three crore additional housing units by 2022.
Having committed to cut down emissions as envisioned in the Paris Agreement on climate change, India should have no choice but to promote green buildings. Experts say that the Government’s “Housing for All by 2022” scheme, which envisages construction of one crore homes by 2022, can be a game changer. Provided the Government seriously looks into it.
“These homes will be made using conventional building techniques and an energy consumption of 21 million units per year and massive CO2 emission of 17 million tonnes per year will be recorded,” says Ajay Jaiswal, Head, Compliance, IIFL Home Finance. “We can change this through green affordable housing. Therefore, it would not be wrong to call green affordable housing the alternative face of India’s ‘Housing for All by 2022’ mission,” he adds.
Some State Governments, including West Bengal, Rajasthan, Punjab, Haryana, Uttar Pradesh, Himachal Pradesh, Jharkhand and Maharashtra (Pune) are offering additional Floor Area Ratio (FAR) ranging from five to 15 per cent for the Indian Green Building Council’s (IGBC’s) silver, gold and platinum-rated projects to boost green housing.
However, this is not enough. While financial and lending institutions in developed nations are giving funds in a big way to developers and buyers in the green sector, India is still at a nascent stage as far as financing green buildings is considered.
“Green real estate has not received the much-needed attention by investors due to several market barriers such as lack of awareness about the green component and limited financial products and instruments,” says Shreyans Jain, Consultant, Asian Development Bank.
Sameer Maithal, from Greentech Knowledge Solutions, a clean energy research and advisory firm, concurs, “India has worked a bit in the financial market in the green housing sector. For instance, the State Bank of India (SBI) has signed a pact with the German development bank KFW while the National Housing Bank (NHB) has one with the Agence Francise de Development (AFD) under a borrowing programme SUNREF (Sustainable Use of Natural Resources and Energy Finance). But these are just pilot programmes. There are no regular products which are available.”
Though the SBI launched its Green Home Loan scheme in 2009, not much progress has been reported as it does not look so lucrative to prospective home buyers. Experts are of the opinion that there is no major change in the features of the existing home loan products except for the five per cent concession in margin, 0.25 per cent cut in interest rate and waiver of the processing fee.
Similarly, the regulator for housing finance companies, the NHB’s performance in providing loans to the green housing sector has not been encouraging. So far it has doled out just Rs 300 crore out of the total kitty of Rs 800 crore in the last three years under the SUNREF to housing companies to spur energy and environment efficiency in the residential housing sector. “It’s a miniscule amount. In reality, the building industry will go green in two ways. Either if policies are strictly implemented or if the end users start demanding them. Here, finance can play a major role. The banks can link the rebate on loan with green certification of the building project,” points out Maithel.
Jain says, “Housing loans are already covered under the priority sector lending (PSL) guidelines of the RBI and the possibility of including green mortgage as a sub-category under PSL norms could be explored. To incentivise property buyers, banks could explore linking home loan interest rate to the star rating/certification of the property. The higher the star rating, the lower the interest rate.”
Does opting for green housing escalate the budget? Not really. There are numerous studies which point out that as long as the design is appropriate, the additional cost of energy-efficient and environment-friendly buildings would not be more than one per cent compared to a traditional building. Therefore, the misconception that green buildings cost more in terms of capital cost should be dispelled, according to experts. Like we have committed finance and targets under International Solar Alliance, there are no serious targets for green buildings. If one goes by the Johnson Controls’s survey, India has only four per cent green buildings. However, 38 per cent of buildings in India want to get the green building certification in the future as compared to the global percentage of 44, the survey points out.
Around 46 per cent people in India are willing to pay a premium to lease space in a certified green building as compared to 51 per cent globally. This is a positive outlook and can be taken further with the right policies and push.
(The writer is Special Correspondent with The Pioneer. The article has been published as part of CMS-BEEP Media Fellowship Programme.)