The Economics of Green Real Estate: Realising the Financial Benefits
The real estate landscape is experiencing a transformative shift, with an increasing focus on sustainability and environmentally friendly practices. In this article, we delve into the economic advantages of green real estate, exploring how such practices contribute to a healthier planet, yield financial benefits for homeowners, and enhance property values.
The Rise of Green Real Estate
Green real estate encompasses properties designed and constructed with environmental responsibility in mind. As environmental concerns become more prominent, homebuyers are expressing a growing preference for eco-friendly homes. This shift reflects a broader awareness of sustainability and a desire to reduce the environmental impact of housing.
Cost Savings for Homeowners
One of the primary economic benefits of green real estate lies in the potential cost savings for homeowners. Energy-efficient features play a crucial role in reducing utility bills. The economic benefits of green-certified buildings have been divided into four categories: lower operation costs because of saving in energy, e.g., electricity; lower maintenance costs as a result of functional testing of all energy systems before occupation; increased value of the building, which directly correlates with energy saving; and tax benefits offered by the government or local authorities.
In the context of Singapore, where the Green Mark Scheme is pivotal in defining green buildings, the economic benefits for homebuyers are evident. The scheme's emphasis on energy and water efficiency, environmental sustainability, indoor environment quality, and green features aligns with the potential for cost savings and increased property values for homebuyers.1 The best-in-class performing Green Mark Building that achieves at least 60% energy savings above 2005 building codes, which is being used as the anchor reference for Green Mark energy savings.
Increased Property Values
Research consistently demonstrates a positive correlation between green features and increased property values. Homes with energy-efficient certifications, such as LEED (Leadership in Energy and Environmental Design), tend to command higher prices in the market. Case studies of green neighbourhoods reveal appreciation rates that outpace traditional housing developments. The perception of sustainability also influences market demand, providing a competitive advantage for sellers and developers who prioritise eco-friendly features.
These findings are no different in Singapore. The Green Mark Scheme, which emphasises energy and water efficiency, environmental sustainability, indoor environment quality, and green features, has been pivotal in defining green buildings. Research has shown that green building certification systems positively influence real estate prices, indicating economic benefits for sustainable construction in Singapore. One study found that the Green Mark certification increases house prices by 1.61% relative to buildings without the certification in Singapore.2
Furthermore, the use of sustainable construction practices, such as the incorporation of recycled concrete aggregates, has been identified as a means to gain points for Green Mark consideration, highlighting the economic value of sustainable construction in the country.3 Additionally, the attention of the Singaporean government to natural ventilation indicators in green building decision-making underscores the economic significance of green real estate in the local context.4
Government Incentives and Programs
Governments worldwide are incentivising green real estate initiatives. Tax credits and rebates for energy-efficient home improvements encourage homeowners to invest in sustainable features. Green building certifications contribute to a healthier environment and open avenues for accessing these financial incentives.
In March 2021, the Building and Construction Authority (BCA) initiated the Singapore Green Building Masterplan (SGBMP) to articulate environmental sustainability goals and objectives to expedite the shift toward a low-carbon Built Environment. As an integral component of the SGBMP, the $63-million Green Mark Incentive Scheme for Existing Buildings 2.0 ("GMIS-EB 2.0" or "Scheme") was introduced on 30 June 2022.
The primary objective of this scheme is to enhance the energy efficiency of existing buildings, advancing efforts to environmentally certify 80% of all buildings by 2030. GMIS-EB 2.0 seeks to provide financial support to building owners in their pursuit of heightened energy performance by reducing initial capital expenditures for energy efficiency retrofits. This, in turn, aims to improve the return on investment, particularly for buildings adhering to Super Low Energy or Zero Energy standards. The scheme is in effect from 30 June 2022 until the allocated funds are fully utilised or until 31 March 2027, depending on whichever comes earlier.
Future Outlook and Trends
The future of green real estate looks promising, with anticipated growth in the coming years. Singapore already has among the most carbon-efficient economies in the world, and it seeks to green at least 80 percent of its buildings by 2030. Further technological advancements and innovations, coupled with increasing consumer awareness and government incentives or regulations, will play pivotal roles in shaping the sustainability landscape within the real estate industry.
In conclusion, the economics of green real estate extend beyond environmental stewardship, offering tangible financial benefits for both homeowners and the real estate market. As we navigate a future where sustainability is paramount, embracing green practices contributes to a healthier planet and enhances the long-term value of our homes.
References
- Hwang, B. and Tan, J. S. (2012). Green buildingproject management: obstacles and solutions for sustainable development.Sustainable Development, 20(5), 335-349. https://doi.org/10.1002/sd.492
- Agarwal, Sumit & Sing, Tien & Yang, Yang. (2017). Are Green BuildingsReally 'Greener'? Energy Efficiency of Green Mark Certified Buildings inSingapore. SSRN Electronic Journal. 10.2139/ssrn.3088895.
- Hwang, B., Zhu, L., & Ming, J. T. T. (2017). Productivity improvement strategies for green construction projects: performance comparison and critical factors. International Journal of Sustainable Building Technology and Urban Development, 8(1). https://doi.org/10.12972/susb.20170004
- Song, Y. and Yu, L. S. S. (2019). Connecting theory and practice:. International Review for Spatial Planning and Sustainable Development, 7(3), 81-96. https://doi.org/10.14246/irspsd.7.3_81
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