Financing green buildings and retrofits still a challenge
Green building has become a no-brainer, as South Africa’s energy crisis worsens with no indication of abating and rolling power outages now seemingly a part of daily life.
The general consensus among industry players was that green buildings were a nice-to-have and the perceived high capital requirements of sustainable building would erode returns.
How times have changed for green buildings to now being the standard for quality real estate in the country.
As associate and sustainability consultant at WSP Africa Alison Groves puts it: “The uptake of the green movement in South Africa has been exponential [and] there is a deep understanding of the benefits of green building.”
In fact, United States-based McGraw-Hill Construction in its World Green Building Trends survey supports Groves’ views. South Africa’s adoption of green building, according to the survey, trumps most developed regions which include Europe, Australia, the United States, the United Arab Emirates, Singapore and Brazil.
While South Africa is only playing catch-up to its developed and developing counters, the survey pegs the country’s take up of green building to grow three-fold, from a measured 16% in 2012 to 52% by 2015.
“The future for green building is more concentrated in South Africa compared to other parts of the world… Notably, South Africa is one of the only countries with a high reported level of green activity in the residential marketplace,” the survey notes.
When South Africa’s green building movement started in 2007, the Green Building Council of South Africa (GBCSA) only certified one building and years later 100 buildings are currently certified.
Despite the country’s progress, most financial institutions are only now beginning to tap into this market by offering capital for green developments and retrofitting initiatives (conversions of buildings built to traditional standards). Property developments by nature are capital intensive and most developers rely largely on financial institutions.
Associate in banking and finance at law firm Norton Rose Fulbright Rorisang Mongoato says property financiers are still using mainstream lending practices, as financing green buildings is not a separate activity from their overall focus.
“Banks are not that sophisticated in green building, as most don’t have dedicated green building divisions. They need to tweak their transactions in financing a green building,” Mongoato says.
She says most financial institutions don’t have the requisite skills in the form of green building professionals who understand the rating system for green buildings, requirements of green buildings compared with conventional buildings and incentives for energy efficient buildings.
Despite these setbacks, she says financial institutions are cognisant of having green building and funding solutions for developers, but she stresses that “it is still early days and a work in progress.”
In the interim, many green building or retrofit projects are being bankrolled by property developers, says GBCSA CEO Brian Wilkinson.
“We have seen most retrofits funded by tenants or owners. The private sector seems to be leading the market with some property developers and property owners applying a green mandate to their businesses with visible returns on their investments,” Wilkinson told Moneyweb.
Implementing energy efficient initiatives, such as replacing conventional light systems with energy efficient lighting, upgrading chillers, investing in rain harvesting technology, waste disposal, solar panel heating, can translate into higher returns on a building.
“Investment in off-grid or co-generation is really starting to take hold as such projects increase their commercial value in the face of the electricity crisis,” Wilkinson says.
Also green buildings are allowing developers to reap the rewards of having lower operating costs, increased productivity and tenant retention as they usually favour energy efficient buildings, says Groves.
Groves adds: “Tenants understand that they would rather pay more in their square metres and reduce their risks in terms of energy costs. Those tenants are demanding green buildings because they see the benefits of going green.”
However, the focus among financiers has been on independent power producers, with the public and private sector looking to grow this market.