$17.8t worth of investment potential in Asia-Pac’s green building sector by 2030: IFC

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City Developments Limited's City Square Mall is the first mall in Singapore to receive the Green Mark Pearl Prestige Award by the Building and Construction Authority (BCA).
DECEMBER 11, 2019 - 11:07 AM

THE green building sector in East Asia Pacific and South Asia is projected to hold $17.8 trillion worth of investment opportunities by 2030, according to a report by the International Finance Corporation (IFC), a member of the World Bank Group.

The Asia Pacific region makes up the bulk of the investment opportunity stashed in the green building sector by 2030 across all emerging market cities with a current population of more than half a million people. 

IFC also highlights residential construction as the most promising area of investment, with a $15.7 trillion potential, or 60 per cent of the market in 20 30. 

Green buildings, or buildings that use energy and water more efficiently, are a higher-value, lower-risk asset than standard structures, according to IFC. 

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The East Asia Pacific, which includes the Asean region, tops the chart with $16 worth of investment opportunities in green buildings by 2030, with clear leads in both commercial and residential sectors. 

With $2.6 trillion potential in the office sector, green commercial buildings in the region will reach $7.1 trillion worth of investment opportunities by 2030. A strong multi-unit-residential sector with $7.6 trillion investment potential allows East Asia Pacific to clinch first place in the residential sector, with $8.9 trillion worth of investment opportunities.

By 2030, more than half of the 4.1 billion people will be living in urban areas in South Asia and East Asia Pacific regions by 2030, which engenders the need for additional residential and commercial building floor space. 

The floor area of the global building sector is expected to double by 2060, adding more than 230 billion square metres, according to IFC. 

Currently, the building sector consumes more than half of all electricity for heating, cooling, and lighting, and accounts for 28 per cent of energy-related greenhouse gas emissions. 

It is expected to use 50 per cent more energy by 2050 than today.

Such resource-inefficient buildings risk of losing economic value or becoming stranded assets due to increasingly stringent regulations, pressure from financial regulators to manage and disclose climate risks, changing consumer preferences, and shareholder demands. 

Non-compliant buildings could also become subject to legal action and fines, making them more expensive to operate and insure, and harder to lease or sell. 

City Developments Limited (CDL), a Singapore-based real estate developer, initiated a Green Lease Partnership Programme in 2014 to support its commercial tenants’ efforts to lower their carbon footprint. 

Since 2017, all existing tenants have signed a Green Lease Memorandum of Understanding to show their commitment to go green. All new tenants receive green guidelines and checklists to help them in fitting out works and operations. 

Elsewhere, the City of Mandaluyong in the Philippines worked with IFC to develop a green buildings ordinance that compensated property owners for compliance through several measures such as a real property tax discount of 50 percent on machinery installed in accordance with the green building regulation. These discounts were found to be attractive enough for developers to adopt even if their buildings were not required to comply, according to IFC. 

Developers such as The Ascott Limited and Italpinas Development Corporation are already using EDGE, a IFC-administered green building certification system, to build green and command greater value in the market. 

IFC also has a resilience tool, which has a five-level grading system, with a grade of A indicating the least risk in a building. 

Despite the ample opportunities in the green building sector, global investments in green buildings accounted for $423 billion of the $5 trillion spent on building construction and renovation in 2017. 

Other than the perceived, high construction costs, a lack of alignment of incentives and benefits among market players, and a mismatch between relatively short hold periods of real estate assets in portfolios and the long lifespans of buildings, emerging markets face challenges to develop and implement consistent standards and requirements for green construction across a highly local and decentralized industry. 

Emerging markets must also address an urgent need to meet a considerable shortfall in affordable housing — a challenge in itself without the added considerations of building green. 

To unleash the full potential in green building sector, IFC calls for a collaboration across investors, developers, owners, and governments.