Preamble
The real estate business in Pakistan has been the most attractive investment sector in the past decade. The industry is well known for minimal investment risk with high-profit margins while also influencing socio-economic indicators. It could significantly impact sustainable development because of how it affects the environment, industry, and economy of a country. This blog by Iqbal Institute of Policy Studies (IIPS) highlights the importance of sustainable development in the real estate sector and explains how the financial and socio-economic value of properties can be increased by using benchmarks for sustainable development.
Research Questions
How is sustainability related to real estate?
What is the relationship between sustainable development goals and the real estate sector?
How can sustainable practices add more value to real estate?
How can sustainable real estate planning be achieved in Pakistan?
Introduction
Real estate is one of the most lucrative and important businesses in the world with a global worth of US$280.6 trillion (Barnes, 2018). On a national scale, the real estate sector is over $1 trillion (Dawn, 2020). In addition, the real estate sector is also one of the most profitable industries with some of the highest return on investments and low-risk margin. The sector also plays a significant role in urban development as it involves maintaining buildings, offices, parks, residential areas and other commercial areas. On the other hand, the real estate sector is also one of the biggest contributors to greenhouse (20%) global emissions, consuming the highest amount of physical resources like fresh water and energy (World Economic Forum, 2016). Moreover, the real estate sector is an important determinant of inequality amongst different areas in a city or region. Taking into consideration the highs and lows of real estate, the sector is considered central to creating an environmentally sustainable future. In Pakistan, the sector plays an increasingly important role in the socio-economic development of the country’s developing economy. Sustainable development is key to achieving a resilient and stable economy (Rehman, 2015).
Relationship Between Sustainable Development Goals and the Real Estate Sector
The multi-dimensional nature of real estate as a business allows the sector to play a central role in sustainable development goals envisioned by the United Nations. The sustainable development goals envisaged in the 17 goals all touch some areas of the real estate sector, from fighting poverty, income inequality and climate change to the sustainable use of land resources, the sector is well connected to all the goals which the UN is trying to achieve along with its member countries. For instance, buildings account for 40% of global energy consumption and 1/3rd of global greenhouse emissions. Considering that a single building has a 60-year average life expectancy, the buildings continue to be a part of the man-made ecosystem for half a century (Donelly, 2015).
The environmental cost of creating and maintaining such buildings contributes to the unsustainable development of real estate as a sector, jeopardizing sustainable development in all other socio-economic sectors (Pronestì, 2020). The landmark Paris Agreement signed by majority UN member countries in 2016, highlighted the role of real estate investments in implementing the Paris Climate Agreement. The sustainable real estate investment plan was the work of the United Nations Environment Programme Finance Initiative (UNEO FI) which was a framework created to direct the real estate sector in lowering its carbon footprint. It was for the first time that real estate asset owners and investors had to present themselves as actively managing environmental, social, governance and climate-related risks as a part of their business practices, management processes and decision making.
How Can Sustainable Practices Add More Value to Real Estate?
The real estate sector shares a paradoxical relationship with climate change as it becomes the means to climate change and as a result is the most affected by that change. It is important to identify different solutions to reduce the emissions of different buildings and urban developments which can increase contributions to climate change like greenhouse gases and consume a corpus amount of natural resources like fresh water and energy. Sustainable practices can add permanent value to the real estate properties as sustainable infrastructure involves the creation of an ecosystem which can be resilient to environmental hazards and risks linked to climate change like wildfires, hurricanes and flooding. The investment value of sustainable real estate properties is fairly higher as green buildings as there is a higher return on investment for green buildings (Ciora et al., 2016). It is predicted that 95% of millennial investors are interested in investing in real estate projects that are sustainable and perform well financially. Sustainability is not only the need of the hour given the state of rapid urbanisation and climate change, but it’s also seen as a financial pillar of real estate investment for the future (World Economic Forum, 2016).
Creating the sustainability framework does not only reap financial benefits but it is also coupled with moral dividends as well. The existing real estate structure must identify ways to reduce emissions and mitigate climate impacts to create a near-future ecosystem which will not expose the real estate to environmental hazards. Some of the most basic and easiest ways to create a sustainable real estate infrastructure which adds value is through retrofitting and repurposing the existing real estate infrastructure. Since the majority of the world’s real estate stock is already in existence, it will not be economically and socially practical to build new cities from scratch. Retrofitting existing buildings to create greener properties is one of the most viable options as it has reduced carbon emissions from 9-13% of the total carbon emissions savings.
Fixing LED lights in commercial buildings are also important in reducing energy consumption by commercial infrastructure. Till now 46% of commercial properties have LED lighting in them (World Economic Forum, 2016). The use of Building Management Systems (BIMS) allows control over the buildings energy efficiency levels with a current penetration of 25% (Hussain, 2019). Retrofitting and repurposing buildings with the above can be achieved at a rapid pace if the investors in the market and clients demand this change. Low operating costs and branding are one of the two biggest factors in influencing green building investment decisions (World Economic Forum, 2016).
Sustainable real estate practices also include creating greater transparency in the real estate sector, which contributes towards better and informed decision making for investors, clients and customers overall. The real estate transparency index created by Jones Lang LaSalle assesses the real estate market transparency based on 200 individual indicators related to investment and performance, market fundamentals, governance of listed vehicles, regulatory and legal environment along with transaction process and sustainability. Performing well on these fronts is important for creating a holistic and well documented real estate which inadvertently increases the financial value of the property.
How Can Sustainable Real Estate be Achieved in Pakistan?
The concept of sustainable real estate is developing in Pakistan as the real estate sector has a significant role in the development of the socio-economic landscape of the country. However, a lack of awareness amongst key stakeholders of the sustainable development process like architects, local real estate agents, government officials and investors especially in the residential real estate sector hinders progress on this front. With the 5th largest population which demands affordable housing, there exists a major opportunity for sustainable buildings in the residential real estate sector of the country. One of the most important ways of creating green buildings and homes is to create buildings approved by the LEED (Leadership in Energy and Environmental Design) certifications. The certifications are globally acknowledged for green buildings for different project types like new buildings, existing buildings, homes and community design and construction. There are different levels of certifications by which the energy and environmental efficacy of the building are assessed and rated.
According to a study on the challenges of creating sustainable residential real estate, it was found that only 46.5% of the architects are aware of the LEED certification (Ahmad et al., 2018). Knowledgeable architects interact with clients directly and motivate the clients to build greener and more sustainable homes. In the same study, it was shown that only 33.3% of the construction material suppliers were aware of the LEED certifications, however, the suppliers of material like insulation materials, heat reflectors, heating and cooling equipment, renewable energy service providers and glass providers should have adequate knowledge about the green building certification and trends (Ahmad et al., 2018).
Pakistan ranks 75th on the Real Estate Transparency Index (out of 100) with a score of 3.99 (JLL, 2020). The score is low in the overall sense however, it has experienced an improvement as the rank has improved three spots. The economists credit this development to an increase in the regulatory institutions, data collection, international market participation and government body publications like quarterly reports on the state of economy and market in general. To enhance sustainable practices in the real estate sector of Pakistan the diverse stakeholders in the real estate sector like the federal and local government, local real estate agents and companies along with investors need to create a highly documented real estate sector which is the first step to creating a sustainable real estate sector as well. If the size of the real estate sector of Pakistan is analyzed on a priority basis, the next task of creating sustainable and greener buildings and properties will become more easy and convenient for the stakeholders and investors (Farooq, 2018).
Conclusion
Integrating a sustainability framework in the real estate sector is central to making a resilient ecosystem which mitigates the effects of climate change and saves finite resources like fresh water and energy from depleting at an exponential rate. Adopting retrofitting and repurposing of the existing infrastructure will help in creating more greener and sustainable buildings. In addition, creating greater transparency in the real estate infrastructure based on government regulations, registration of vehicles, investment performance and sustainability of transactions in the real estate business, are all important preconditions to creating a sustainable and green real estate. In Pakistan awareness in masses and markets regarding green and sustainable real estate practices plays a decisive role in the creation of a greener infrastructural landscape.
Key Takeaways
The real estate sector is central to socio-economic development and environmental stability of a region.
Buildings consume a major portion of freshwater, account for 40% of global energy consumption and 1/3rd of global greenhouse emissions
The sustainable real estate investment plan was the work of UNFP which was a framework created to direct the real estate sector in lowering their carbon footprint.
It is predicted that 95% of millennial investors are interested in investing in real estate projects that are sustainable and perform well financially.
The investment value of sustainable real estate properties is fairly higher as green buildings as there is a higher return on investment for green buildings.
Some of the most basic and easiest ways to create a sustainable real estate infrastructure which adds value is through retrofitting and repurposing.
With the 5th largest population which demands affordable housing, there exists a major opportunity for a sustainable building concept in the residential real estate sector of the country.
Sustainable real estate practices also include creating greater transparency in the real estate sector, which contributes towards better and informed decision making for investors, clients and customers overall
Pakistan ranks 75th on the Real Estate Transparency Index (out of 100) with a score of 3.99.
