the financial performance of green building in...

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w w w . r b s a . i n

THE FINANCIAL PERFORMANCE OF GREEN BUILDING IN INDIA

Urban Sustainability and Green Buildings for the 21st Century

Presented at Conference and Workshop on

15th May, 2009 New Delhi

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TOPICS

INDIAN PERSPECTIVE

DEMAND POTENTIAL

COST - BENEFIT ANALYSIS

PERCEPTION & REALITIES

THREATS

VALUE IMPACT ON GREEN BUILDING

CONCLUSION

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INDIAN PERSPECTIVE

Construction Industry growing at an average rate of 9% as compared to global average of 5%

Green Building movement in India started in 2001

More than 340 Green Buildings with a foot print of 220 Million sq ft

Mainly in Commercial Segment

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TOPICS

INDIAN PERSPECTIVE

DEMAND POTENTIAL

COST-BENEFIT ANALYSIS


THREATS


CONCLUSION

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DEMAND POTENTIAL

Demand is due to

Growing Environment Consciousness

Lower cost of operation of Green Buildings

as against increasing cost of energy

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TOPICS

INDIAN PERSPECTIVE

DEMAND POTENTIAL



THREATS


CONCLUSION

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COST-BENEFIT ANALSIS Cost mainly due to:

still-evolving nature of green buildings;lack of technical information;incomplete/inefficient execution of green projects;short-term view on returns, instead of focusing on lifetime return on investment (ROI) of these buildings

In mature markets the cost premium ranges from 1-6%Cost premium in India is in the range of 6–18% depending on the level of ratingThis can be attributed to lack of technical expertise, immaturity of the market and lack of resourcesAs the awareness increases, the cost premium in India will realign with that of global standards

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COST-BENEFIT ANALSIS Tangible Benefits:Green buildings are operationally very efficient as compared to similar conventional buildings

25-30% more energy efficient; 75-90% of the space illuminated by natural lightUses 20-30% less water. 70-100% of used water is treated or reused for landscaping and air conditioning;Green buildings reduce construction waste by approx. 50%

Intangible Benefits:Better air quality, Enhanced Indoor Environment Quality Provides better health for occupantsReduces the absenteeism rate by 40% and increases productivity by 5%

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INDIAN PERSPECTIVE

DEMAND POTENTIAL



OPPURTUNITY & THREATS


CONCLUSION

TOPICS

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PERCEPTION & REALTIES - 1

The cost could be slightly higher than a conventional

building. But, this needs to be seen with a different

paradigm.

Green Buildings would last for about 50 or 60 or even 100

years! The saving due to lower operating cost is for entire

life span of the building while the incremental cost is a

one-time cost only and it is only about 8-10 %. The cost

of Green building is lower than a conventional building

in a long run.

PERCEPTION Green buildings are costlier

REALITIES

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32%Silver 78,0002007Hyderabad HITAM

48%Platinum 15,0002007Noida

Spectral Services Consultants Office

36%Gold 72,0002006KolkataTechnopolis

36%Gold 40,0002005ChennaiGrundfos Pumps

58%Platinum 1,75,000 2005GurgaonWipro

615%Platinum 1,70,000 2004GurgaonITC Green Centre

718%Platinum 20,0002003Hyderabad CII-Godrej GBC

PAYBACK (YEARS)

% INCREASE IN COST

RATING ACHIEVED

BUILT-IN AREA (SQ FT)

YEAR AWARDED

CITY BUILDING

PAYBACK PERIOD IN THE RECENTLY CONSTRUCTED GREEN BUILDINGS IN INDIA

TYPICAL PAYBACK PERIOD

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Green Building concept can be applied for non-air

conditioning buildings too

Applied on three such buildings in India

IGP office

Gulbarga

Hyderabad Institute of Technology and

Management

PERCEPTION Green buildings have to be air-conditioned

REALITIES

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There is absolutely no difference in the

time involved in constructing a Green

Building vis.-a-vis. a normal building.

PERCEPTION Green buildings take more time

REALITIES

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INDIAN PERSPECTIVE

DEMAND POTENTIAL



THREATS


CONCLUSION

TOPICS

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THREATS

Lack of Information and Incorrect perception

Any turbulence in Real Estate Industry will affect

developers’ propensity to invest in additional cost centers.

Standalone Green Building Developments do not fully

adhere to the overall green building concept. Must

include town planning, sanitation and social infrastructure.

Sourcing of Materials can be difficult.

Lack of Professional Support

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INDIAN PERSPECTIVE

DEMAND POTENTIAL



THREATS


CONCLUSION

TOPICS

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IMPACT ON VALUE

Negative impact on value at early

age of the building

Positive impact on value



▼▼▼▼

--------Increases the net income

Higher rents, less vacancies

▼▼▼▼

Causes lower initial return on capital

Lower operating expenditure

Lower operating expenditure

Greater demand for space

▼▼▼▼

Higher capital costReduced facilities maintenance costs

Reduced building operating costs

Improved working environment

OVERALL IMPACT ON VALUE

Source: Reed and Wilkinson (2007)

17Expected higher Capital Value of Green Buildings Overall

- Less chances of being obsolete - Less outgoings;- Less vacancy rate; - Higher expected rental growth; Expected lower risk exposure of green buildings in terms of:

Expected lower capitalization and discount rate

Capitali-zation and Discount Rate

Expected more demand of Green Buildings to lease outExpected lower vacancy rate

Vacancy Rate

- Reduced cleaning and waste management costs due to recycling

- Lower repair and maintenance costs- Reduced water and sewerage costs- Reduced energy costs: electricity and gasExpected lower outgoings growth due to:

Expected lower outgoings growth

Outgoings

- Improved indoor environment quality and employees’productivity

- Energy efficient building, reduction in carbon and other emissions

Expected huge demand of Green Building for leasing out based on:

Expected higher rental growth

Income / Rent

IMPACT DETAILIMPACTVARIABLE

IMPACT SUMMARY

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INDIAN PERSPECTIVE

DEMAND POTENTIAL



THREATS


CONCLUSION

TOPICS

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CONCLUSIONIncrease in Building Cost is about 6% to 18%Saving in Electricity cost is 25%Saving in Water charges is 30%Increase in Carbon Credits generates monetary returnsIncrease in Rental Income is 1% to 2%

‘Value means Present Worth of Future Benefits’

Capital Value of Green Building = Net Income x Year’s Purchase

Future benefits like increase in Rental, increase in Carbon Credits and saving in Energy Cost over the life of the Green Building will result in to Higher Net Income generated from Green Building and in turn HIGHER CAPITAL VALUE.

A case study reveals that a Saving of US$ 1Million can be generated over 20 years if US$ 1,00,000 is spent for green incentives for a project cost of US$ 5 Million.

In addition, it is projected that the Green Buildings offer the opportunity to reduce 1.8 to 2 Billion Tonnes of Carbon Dioxide……

…..LIVE IN A HEALTHY ENVIRONMENT !!!

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THANK YOU!!!

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