A new German fund for green buildings won’t achieve much unless there is strong support from builders and banks, says Chandrashekar Hariharan

About two years ago, Germany and India met to see how the former could help our country with energy-efficient construction. Industry leaders and experts were invited to share ideas.

They came up with a simple plan. Germany would refinance up to about Rs. 350 crore under a pilot project. India’s National Housing Bank (NHB) would offer the fund to a few home finance companies that were willing to transfer the benefit of concessional interest to homebuyers who chose to buy energy-efficient homes from green certified projects.

In the first week of May, the Country Head of KFW (Germany’s second largest development bank) and the CEO of NHB met again to enrol stakeholders from among Indian builders and bankers who could take this ahead. KFW is clear that it wants speedy reactions from NHB in distributing the funds. It is now nearly 18 months since over 60 per cent of the KFW fund was transferred to NHB and there has been no refinance sanctioned yet.

First, the good news. India is already the fastest growing green building market in the world. By 2020, it will also be the largest. The CII’s Indian Green Building Council has created an ecosystem of green homes with its IGBC rating system. The number of such buildings has reached 700 million sq. ft, representing about 720 projects and half a million homes. The government’s GRIHA rating system has been significant as well. At less than 50 million sq. ft, it has gained enough critical mass to be able to touch billion sq. ft in the next three-five years.

The bad news is that builders are still diffident at having to spend an additional 5-7 per cent of project cost to achieve energy efficiency. The additional cost is thanks largely to the industry’s own ignorance of new trends in technology in managing energy, water and waste. Both demand-side management and supply-side solutions are needed right from design down to servicing these needs.

In fact, residential buildings are going green much faster than commercial buildings, despite the latter’s head start, and despite a commercial building’s water requirement being at least 10 times lower than that of a residential complex. For commercial buildings, the biggest energy guzzler is air-conditioning at 60 per cent of energy bills, and they need to show much more initiative to control this.

The Rs. 350 crore KFW-NHB fund cannot reach more than roughly 700 homes, if we assume Rs. 50 lakh as the average price per home. This year can be the turning point for such concessional home finance but the initiative must be backed by other government efforts such as rebates on municipal taxes and stamp duty concessions for green buildings.

It will also require a large ecosystem of architects, service consultants, and green building auditors to monitor systems and processes. This requires countrywide training courses. The scenario over the next four years will, therefore, be one of conscious effort to culture a business environment that pushes all builders into becoming green. Once it becomes a default benchmark, incentives and other supports will get naturally dismantled.