The adoption of environmentally friendly building practices is gaining momentum in the Philippines

Slowly but surely, the adoption of green building practices in the Philippines in office, residential and public sector construction projects is gathering momentum. Adhering to corporate social responsibility commitments on climate change reduction, multinationals have been the first movers in terms of demand for more environmentally friendly premises. Local corporates and residents are following suit, driven by soft factors such as promoting employee wellbeing and productivity, in addition to cost saving motivations in the face of rapidly escalating energy prices and supply concerns.

“Green architecture and construction is new in the market, and it comes at much higher cost. However, the foreign locaters are demanding it, and it is likely where the market is heading,” Anthony L Fernandez, president and COO of First Balfour, told OBG.

Until now, advocates of more sustainable building techniques and features have argued that a lack of both a government regulation and imposition of mandatory green building standards has limited the pursuit of green buildings to mainly the higher end of the market. This is set to change if and when the Green Building Code, which is targeted to be ready by June 15, 2015, comes into effect.

SETTING CRITERIA: In 2007 the Philippines Green Building Council (PHILGBC), a non-governmental organisation, established a rating system named “BERDE” – which in Tagalog means “green” – to aid in the grading of new, existing and retrofitted buildings according to their green credentials in the areas of design, construction and building management.

BERDE is similar to the Leadership for Energy and Environmental Design (LEED) certification that originated in the US, is commonly adopted throughout the world and is required by US-domiciled multinationals. However, according to the PHILGBC, the grading system has been tweaked slightly to harmonise and align more closely with the standards already in place among counterpart green building councils in the region, and attempts to take into account localised conditions such as tropical weather patterns and the availability and wider usage of different building materials. The Department of Energy has officially endorsed BERDE as the nationally recognised voluntary green building rating system.

Meanwhile, the Department of Public Works and Highways – in cooperation with the International Finance Corporation (IFC) and the World Bank, and in consultation with the PHILGBC – has been busy drafting a Green Building Code that could be mandatorily applied to all government projects and to new constructions of a certain size.

DOING THE MATHS: The commercial case for investing in green buildings is especially prevalent in the Philippines, where electricity prices are among the highest in the world, and power rates are considered the most expensive in Asia. Electricity for general use in Manila costs $0.23 per KWh, compared to just $0.07 in Hanoi and Ho Chi Minh City, $0.08 in Bangkok and $0.11 in Kuala Lumpur.

In part, the higher rates stem from higher production costs due to a lack of exploited indigenous hydrocarbons sources, while partly it has to do with a conscious decision on the part of the government not to subsidise end-user tariffs. Irrespective, electricity remains in scarce supply.

As commercial and residential buildings, according to the Department of Energy, were responsible for 63% (38.9m MWh) of total consumption in 2013, there is also a significant environmental impetus to reduce their energy requirements, which have grown by 45% since a decade earlier, when they accounted for 24.46 MWh of consumption.

RECOUPING COSTS: According to figures from real estate services firm CBRE International, qualifying for LEED certification, if done efficiently, adds an extra 2-3% of costs to a typical development’s price tag. Proponents of green certification argue that the added expense can be offset over time by savings on utility bills (mainly water and electricity) and revenue potentially generated from offloading waste for recycling. The PHILGBC, meanwhile, has produced studies which demonstrate that corporate tenants and residents, out of an adherence to environmental responsibilities, are willing to pay a premium for green-certified buildings. Higher productivity, garnered from fewer sick days and greater employee satisfaction, can also be quantified. In all, the PHILGBC states that investing in green building features usually entails a five-year payback period.

The PHILGBC expects the year-on-year growth in new residential and office buildings to be around 6%, and in an environment of land shortages and escalating land prices, the tendency is increasingly to build vertically and with higher density, rather than horizontally, in housing developments and office parks. This is a trend that, if catered to more sustainably via deployment of rain catchment systems and window solar panels, contributes to the preservation of open spaces amid rapid urbanisation.

REQUIREMENTS: The IFC has stated that, if implemented as planned, by 2030 the introduction of a compulsory Green Building Code will reduce carbon dioxide emissions by 1.9m tonnes, and result in annual energy savings of 3.9m KWh that would be equivalent monetarily to around P38bn ($855m). The code’s draft stipulates that it will initially be applied to major building projects over a given size, requiring them to adhere to certain requirements before a building permit is granted. Over time, depending on the programme’s success, the specifications will be extended to smaller constructions.

VOLUNTARY ADOPTION: Regardless of the pace at which the Green Building Code is applied, the voluntary adoption of greener practices should become a self-fulfilling prophecy. As more and more green buildings go up, and display a proof of concept in terms of the cost savings, other developers will gain the confidence to follow suit.

It seems likely that the office sector, driven predominantly by multinationals’ corporate social responsibility commitments, will continue to account for the greater proportion of green-certified properties. The residential market, meanwhile, will eventually catch up as younger couples and families, who tend to be more green-conscious, climb onto the property ladder as first-time buyers.

IMPLEMENTATION CHALLENGES: Surplus to demand drivers, the pace of adoption is also tempered by implementation challenges. There is a lack of expertise in green project design and engineering among local developers, as well as a scarcity of green building material supplies.

Both of these factors should eventually be overcome as green construction experience is accumulated and supply chains are ramped up. Meanwhile, some are calling for financial incentives – such as tax breaks on imported green materials and lower tax rates applied to green properties – to provide some intermediary relief and encouragement.

One area of concern for some regarding the feasibility of a mandatory nationwide government-driven programme is a shortage of qualified building inspectors. There are also challenges related to coordinating with local government units on ensuring that the standards are strictly followed, since many local government units are understaffed in terms of the number of city building officials needed to monitor and supervise every construction phase of buildings within the local government unit’s jurisdiction.

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The Report: The Philippines 2015

Construction & Real Estate chapter from The Report: The Philippines 2015