Chinese builders bemoan green costs, risking government targets

Reuters News
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Posted: Dec 11, 2014 4:09 PM

By Clare Jim

HONG KONG (Reuters) - Chinese developers are opting against constructing environment-friendly real estate because costs far outweigh the incentives, jeopardizing the government's goal of building 1 billion square meters of green space by the end of next year.

Developers get subsidies of up to 80 yuan ($13) per green square meter, topped up by local authorities. But it costs up to 300 yuan/sqm to plant trees, install renewable energy sources, recycle rain water and implement other steps to earn a maximum of three stars in the government's green label program.

Green initiatives have taken on increased significance since last month when China agreed with the United States to cut carbon emissions from an expected 2030 peak.

But China is already struggling to meet its green building goal, set in 2011. At the start of 2014, it had reached just 163 million sqm, about a sixth of the target. [ID:nL3N0T21YK]

"Most large developers see real value (in green engineering). Second and tertiary developers may say, 'We don't see much'," said Chris Birdsong, Asia-Pacific chief executive of consultancy Atkins. "Smaller developers want to do something quickly... Costs to them will be more than they ever want to bear."

For some developers, green recognition raises brand image and allows them to charge a premium. Franshion Properties China Ltd sold six Shanghai office buildings for over 90,000 yuan/sqm last year, with green features pushing the price around 10,000 yuan over that of similar nearby properties.

For other developers, cost-cutting is more of a priority as oversupply in a slowing economy led to the steepest decline in home prices in October since 2011.

Officials at three small developers, who declined to be identified because of the sensitivity of discussing government policy, said green concepts are not generally considered in their project designs because of concern about costs.

Officials at two international architecture firms also said Chinese clients often decide against incorporating green elements after learning about the costs.

REVISION

State-backed Greenland Group estimates a cost of 50 yuan/sqm - 1 percent of the total - to attain a one-star rating, 100 yuan for two stars and 300 yuan for three stars. The company said it spent an extra 20 million yuan ($3.25 million) in 2010 to achieve three stars for its 40,000 sqm headquarters in Shanghai.

But even state-owned developers question the costs associated with the green label program. Moreover, the first revision to the six-year-old program will, effective from Jan. 1, increase the criteria necessary to attain green status, which in turn could affect costs.

"When consumers buy a home, how many stars it has is not a big factor," said Ye Guodong, operational director of the green research center of state-backed China Merchant Property Development Co Ltd. Targeting stars is not cost effective so the company sets its own green standards instead, he said.

China Vanke Co Ltd, the country's biggest residential property developer, is considering planning fewer three-star projects in particular as their green costs will likely double when the revision kicks in, said an official who was not authorized to speak with media and so declined to be identified.

To be counted under the government's target, however, projects need only attain one star, which from this year is compulsory for all projects bigger than 20,000 sqm and all public subsidized housing.

The government is considering making one-star status mandatory across the board, said researcher Ma Xinbo of the Center of Science and Technology of Construction, which falls under the Ministry of Housing and Urban-Rural Development.

"We're also aware that some projects, particularly residential ones, applied a green label just for the sake of marketing," Ma said. "We're now studying how to ensure the quality in green operation after they get a green design label."

(Editing by Christopher Cushing)