Premium pricing may pose threat to green residential home appeal

THERE will be increasing tendency for stakeholders within the Malaysia buildings and construction industry to gradually embrace green buildings, given the increasing focus on sustainability from real estate investors as well as more stringent building energy codes from policymakers to address climate change.

CGS-CIMB Research expects the domestic buildings and construction sector to evolve to achieve net-zero carbon buildings via (i) implementation of mandatory building energy codes; (ii) targets for more buildings to be green-certified; (iii) the promotion of industrialised building systems (IBS) adoption and automation; and (iv) increasing usage of eco-friendly green building materials.

“(However), the higher green construction cost premium vs lower pre-sale green premium for such residential buildings could dent developers’ margins,” opined analyst Ngo Siew Teng in a property sector update.

“Based on our findings, the construction cost premium for green buildings range at 0%-14% vs conventional buildings.”

According to a Life Science Journal’s article, a majority of Malaysian home buyers are only willing to pay up to 3% premium for green homes vs a 0%-6% green construction cost premium for a Green Building Index (GBI) certified residential building.

“We believe property players will prioritise green-fitted commercial/industrial buildings, given the higher marketability and selling price premium as real-estate operators and office occupiers need to address environmental, social and governance (ESG) issues,” reckoned CGS-CIMB Research.

“However, green-fitted residential buildings may not command a selling price premium as home buyers are more sensitive to pricing.”

All-in-all, the research house expects property players with (i) experience in designing and obtaining green certification for their buildings/projects; and (ii) high adoption of IBS and in-house IBS manufacturing facilities to benefit from the rising demand for green-rated buildings/projects.

The research house likes SP Setia Bhd within this space as it has experience obtaining green certification for buildings while having a unique in-house IBS manufacturing facilities. Additionally, it also likes Sime Darby Property Bhd’s clear goals and action plans under its 2030 Sustainability Goals that cover green building development aspects.

“We retain the “neutral” call on the sector given affordability issues, potential interest rate hikes, and higher property overhang which is balanced by KL Property Index’s undemanding valuation,” asserted CGS-CIMB Research.

“A key potential sector upside risk is stronger-than-expected new sales while a key downside risk is a weaker macro outlook.” – Dec 7, 2021

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