How the EU Green New Deal impacts real estate investments

(Tomka)

By 2050 the EU wants real estate to be carbon-neutral. This is creating plenty of challenges already. Real Estate investments will be impacted – either good or very bad.

It is not the time to discuss the qualities of EU regulations concerning energy efficiency – they are existing. And if this commission is giving out the agenda – all Europeans have to deal with it. No matter if you see it as a great, even historic chance, or if you see it as a historic menace– it is better to find a solution for your situation.

The EU Green New Deal

Since 2021 the European Union has been working on a legal framework: the Energy Performance of Buildings Directive (EPBD III). This directive is supposed to lead to strict energy efficiency of buildings, which is considered one of the most impactful sources for carbon emissions next to the energy companies, industrial companies, and traffic.

There will be several milestones in this program which are important to know. Office buildings or public buildings have to reach the energy efficiency class E in 2027 and have to reach D in 2030. On the other hand, family houses and apartment houses have to reach those classes slightly later – class E in 2030, class D in 2033.

But from 2028 on all new buildings must be built following the EPBD-guidelines. Further on, for all new buildings it is mandatory to be fitted with solar panels from this year on.

To accomplish this the commission suggested – and the parliament agreed to that – to establish uniform and consistent efficiency classes, which are already used for electric and electronic devices. They are now labeled from A (best) to G (worst). Although these classes are not definitely defined yet.

Starting where

That being said, the plan follows the “Worst First” strategy, which means that the 15 percent of G-class houses within the European Union have to be maintained now. Because these buildings have to reach class E by 2030. The problem – almost 40 percent are not renovated or maintained yet in some way.

Austria will provide € 940 million in grants to support the maintenance of such buildings for the years 2023/2024. This might help to cool the financial wounds cut into the taxpayers´ flesh through the regulation. But the burden is still heavy – as well on investors and developers as on families.

Not only do you have to consider up to € 12.000 for a new ground source heat pump, but again € 20,000 for the workers. These are at least costs of € 32,000,-. But it is also the time one has to wait until you get it. In Berlin you have to wait up to one year to get the workers for it.

The prices will rise, also because of the closed sales of the German Viessmann Group to Carrier Global, who will now make the business within the EU. And, besides that, will gain great knowledge about the ground source heat pump and developing innovative systems.     

The ones ask for grants, the other ones consider taxes as a tool for measurements. If it is really for the objective of carbon-neutrality a mix of both tools will make best sense, like a reduction of property tax and a 50 percent grant on the engine and work. With a cashflow model each ministry of finance should be able to create a model to provide grants and enough income for the state at the same time.

Impact on investments

However, there will be impacts for those who have planned to invest in real estate. For those who already have plenty of buildings in their portfolio it is simply another way of cost for upgrading their property, maybe even for gentrification, which would create higher property sales or higher rent revenues.

Others will have to invest in downgraded buildings which provides the opportunity to upgrade those by following the EPBD. It is just a matter of access to enough capital. Nothing else.

The same is valid for family properties – but it is most likely that their access to capital might be limited. The “Renovation Wave” is hardly to be stopped, but – much more – a second wave is to be expected. Because the idea behind it is that – when the first levels are reached by 50 percent of the buildings – a new standard will be established.

The program has the chance to be a great solution for decarbonization. This program also has a great chance to be the transmitter to market concentration on some selected few. A balance herein would create profit in all areas. The question that may be asked here is: Is the best for all the intention of the plan?