Monday, April 15, 2024

Exploring investment opportunities in eco-friendly developments

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India’s real estate sector has built towering concrete jungles to fuel rapid urbanisation thus far. Yet, the sustainability focus is now pushing developers towards green buildings. Indeed, registration numbers reveal that certified green projects have expanded over 36% CAGR since 2013. Driven by policy nudges and latent demand, this creates a compelling investment proposition.
Industry data indicates merely 3-4% of real estate supply in India’s top 7 cities is sustainably built currently. However, by 2025, green certification is projected to expand to 20–30% given regulatory obligations alongside rising tenant and homebuyer eco-consciousness. This opens substantial room for growth.
Underpinning this visible transition are mounting climate risks and over 11% energy savings from lower operational costs in green structures. Thus, Indian Green Building Council (IGBC) norms for optimised energy, water, and waste efficiency are gaining traction.
Savvy developers now target IGBC Platinum or LEED Gold certifications for futureproof assets. Many even avail of government incentives like faster plan sanctions, additional FSI, property tax rebates, etc. to expedite viable green projects. This makes such sustainably built developments attractive flagships for investors hunting for future alpha.
ESG-compliant funds already factor green certification into underwriting property purchases, given the associated stability and lower risk. Moreover, enhanced building valuations bolster resale potential even as rising demand for sustainable workspaces fetches higher rents too.
Yet, bridging the existing eco-housing supply gap demands addressing deterrents like high upfront construction costs, a lack of specialised green financing tools, and a fragmented value chain. In line with global trends, ESG-compliant funds already preferentially seek green certification when underwriting property purchases, given the lower risk. Moreover, enhanced building valuations on resale, along with rising demand for sustainable workspaces fetching higher rents, also offer a healthy upside.
However, bridging the extensive eco-housing supply gap necessitates tackling deterrents like high initial construction costs and a lack of green financing tools. But based on our experience, aggregated supply chains and bulk procurement efforts can trim related expenses by 20%. Equally, financing innovations like sustainability-linked home loans offering 5–10 bps points will also boost adoption.
Additionally, some promising startups focused on modular green construction techniques are gaining traction through their affordable Leed-targeted housing and customisable sustainable retrofits. Their wider adoption can drive scale while lowering market entry barriers.
In my view, sustainability is no longer optional but a competitive advantage developers cannot ignore given occupiers’ preference for reduced environmental impact alongside cost savings from efficient operations. Though currently niche, certified green structures are primed for exponential growth as metrics like Well certification encompassing health and well-being gain prominence too.
For investors who spot potential early, ripe opportunities exist by identifying players embracing innovative construction practices using green materials, smart IoT features, and renewable energy integration. Such future-ready firms represent attractive bets given their ESG compliance and long-term resilience.
By enhancing the viability of sustainable spaces, these market shapers possess immense potential to transform India’s property landscape. Their success can motivate peers to follow suit, thereby helping green certification become the status quo. With all the momentum around sustainability, the time for investing in eco-conscious real estate is clearly at hand!

(The author, Gunjan Goel, is the director at Goel Ganga Developments.)

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