The real estate market is changing quickly due to growing environmental consciousness and the need for swift climate action. The practice of developing sustainably has become more commonplace and is motivated by both cost considerations and environmental concerns. Fintech is stepping up to support these green projects in a variety of ways as a result of the shift. Written on January 31, 2019, by Emma Gluskie, Head of Research at MODUS The choices made by investors and developers regarding green financing for sustainable real estate development are examined in this article.
Development of Sustainable Real Estate on the Rise
Several techniques are used in sustainable property development with the goal of reducing the environmental impact of buildings over their lifetime. These strategies can include the best possible passive cooling design, the use of renewable energy sources, the selection of environmentally friendly construction materials based on their lifespan impact, and the installation of water-saving devices. The benefits of these breakthroughs include:
Reduced water and energy use to save operating expenses
residents who are healthier and more productive
An increase in the value of homes and rent
decreased carbon footprint and environmental impact
increased resilience to the effects of climate change
As more people become aware of the benefits that sustainable houses provide, demand for them is predicted to rise steadily in the future. Green technologies and sustainable building methods might, however, come with higher initial prices than traditional construction. The link between financially feasible projects and sustainable goals is created via green funding.
Green Financing Options
1. Green Bonds
Green bonds are debt securities whose proceeds go toward funding environmental and climate protection. They function similarly to conventional bonds as a kind of bond, albeit they have an extra advantage. Issuing green bonds to real estate developers is one method of funding large-scale sustainable development.
Key features:
Lower interest rates than the usual bonds
Draw the Green Crowdfunding Investor
Need disclosure about the use of proceeds and environmental impact
2. Green Loans
Green loans provide financing especially for investments made in environmentally friendly projects. Loans for high-performance buildings could have better terms than regular loans since they are less risky.
Benefits include:
Plausibly Reduced Rate Of Interest
Longer repayment periods
a wide range of green projects within a product that the funds can be used for
3. Energy Efficient Mortgages (EEMs)
EEMs: Energy-Efficient Mortgages Depending on the kind(s) of improvements completed, EEMs give homeowners additional money up to 15% of the property value and include the cost of energy upgrades in the mortgage. They are designed to lower utility costs for homeowners and help them afford what is often a more energy-efficient home. The idea is being used in commercial developments even though it is most frequently associated with residential structures.
Advantages:
Makes it possible for borrowers to be approved for more significant loan amounts
Refinance for energy-saving upgrades in existing homes
Acknowledges the long-term energy savings in a green building
4. Property Assessed Clean Energy (PACE) Financing
A property owner can install renewable energy systems or energy efficiency upgrades under PACE programs, and they can pay for these installations over time through their local property tax rate. When installing sustainable technology into already-existing buildings, this kind of funding can be extremely helpful.
Key aspects:
Some can be financed over the long term (even as much as 20 years)
Stays with the home when sold, so it runs almost zero risk for current owners
Applicable for Residential as well as Commercial properties
5. Green REITs (Real Estate Investment Trusts)
Investment vehicles known as “green REITs” are those that hold or invest in ecologically friendly real estate. Investing in environmentally friendly real estate development and earning potential returns from institutional and retail investors is possible with a Green REIT.
Benefits:
Liquidity for the sustainable real estate market.
Provides an opportunity for mom-and-pop investors to get involved in mega-green initiatives
REIT investment can be lured in by developers prioritizing sustainability
6. Sustainable Development Funds
The answer is that most government agencies and even private organizations frequently give money in the form of grants to projects that are exclusively intended to further sustainable development. These could take the form of grants, low-interest loans, or stock investments in initiatives that adhere to environmental regulations.
Characteristics:
Require extensive environmental impact reports in many cases.
Potential technical assistance for sustainabilityimplementation
Balanceable with other lending for full financing
The Future of Green Financing
Given the increasing urgency of taking action on climate change, we should only expect to see more innovative approaches to green financing. Among the new developments are:
Using big data and artificial intelligence to analyze a property’s environmental context and forecast performance
Developing blockchain-based tools to enable transparent investment tracking.
deeper collaborations in the creation of new funding solutions between NGOs, internet companies, and banks
More stringent rules governing energy efficiency and carbon emissions from buildings will probably make green financing the norm rather than an exception.
Conclusion
The transition to sustainable real estate development is happening much more quickly thanks in large part to these green funding options. These financial tools provide the necessary funds and incentives to overcome the initial costs associated with green development. For developers and investors, knowing the potential of options can result in projects that are more durable, valuable, and ecologically beneficial.
The final component of the sustainability revolution—innovative financing and green building technologies—will be crucial in our march towards a sustainable future for developing Sustainable Cities and Communities of Tomorrow. These will integrate with other crucial planetary boundaries that are either supported or impeded by human climate action plans, respectively, to prevent closing windows on all mitigation pathways. Let ownership can take the lead in the battle against climate change and contribute to the creation of a greener future through the use of these green financing options.
