Chris Brooke is president and chief executive of the Asian arm of CBRE, the world’s largest commercial property advisor. He is speaking today at the Business Summit on Climate Leadership in Hong Kong, organised by the Climate Group.
Olivia Boyd: What are the biggest environmental challenges facing the Chinese property market?
Chris Brooke: One is simply the pace of development and the fact it is simultaneously happening in multiple locations across the country. The government is leading the way in trying to put a regulatory framework in place, but it’s challenging. I think the issue really is: how do you ensure execution and implementation of the green measures? Is it through the regulatory side of things or is it through financial incentives – which side of the stick or the carrot are you going to try?
The government is putting that regulatory framework in place, so clearly there are some standards which need to be complied with, but at the same time it’s not entirely clear if some of those are voluntary or mandatory and how they get implemented.
And within the industry, I don’t think there is necessarily the broader acceptance that the green measures should be introduced as standard practice. So you have a very wide variety of quality of buildings, from those that are getting LEED platinum certification in Beijing or Shanghai to those that developers are looking to build themselves strata title [where developers sell off apartments or other units within a larger block to lots of different buyers] in second-tier cities, where they’re not really concerned about those types of issues and are much more focused on financial returns.
OB: So in those places is financial incentive rather than regulation the more effective route to go down?
CB: I think so. There is also a mindset issue in that it’s only now that the bigger developers are beginning to move from the trading income mentality [i.e. a focus on short-term profit from property sales] to the long-term investment portfolio mentality. So the top 20 or 30 listed developers are all leading the way in that area and are building commercial portfolios around the country where they can obviously see the benefits of getting [green] certification. Those grade A office buildings or shopping centres they’re building, even the ones in provincial capitals, will all be of a certain standard that will secure LEED or local Chinese certification.
The challenge is more the broader industry, where to a lot of the developers, frankly speaking, as long as someone is there to buy the smaller unit within the building at the end, the green aspect doesn’t really matter. So that is one of the more significant challenges in terms of ensuring that some of the design features actually get implemented.
OB: What can you do to tackle that mindset? Is it just about waiting for the sector to reach a particular stage of development?
CB: Again, I think there are probably two sides to it. The government needs to look at how to enforce in that area, although it’s very difficult, and through the building codes make sure those buildings have the same requirements in terms of energy efficiency and other features.
Otherwise, yes, unfortunately it’s a sort of market evolution issue whereby we have to get to the point where the smaller investors who are buying those sorts of accommodation attach a value to the additional features. I think the direct way is obviously through reduced costs, through utility bills being down and reduced operating costs. I think it has to be geared around that financial side of things.
OB: How effective can the more sophisticated developers at the top of the chain be in terms of influencing the rest of the market?
CB: I think in an aspirational sense they can be quite influential. If, say, China Overseas or Vanke or Sino-Ocean or China Resources is leading the way, then people tend to look at the brand and follow what they’re doing. They say, well, if those guys are doing that and being successful, then maybe we should as well. But it probably really only applies to the next tier down. Once you get to the much smaller developers in the local markets, there’s less influence they can have because, again, it becomes driven much more by short-term financial returns.
OB: Do international firms have a role to play in shifting the marketplace?
CB: I think so. Obviously through our own corporate behaviour, but where it’s more important is through areas like our consulting business, where there’s an opportunity for us to talk to customers and clients about the benefits and also show them the demonstrable benefits elsewhere in the world, particularly in areas like energy efficiency.
In some of the new development areas, the eco-cities and low-carbon pilots, there’s ways in which we can help bring in best ideas and best practice from around the world to make sure those new development areas are based on as sustainable a basis as possible.
OB: How optimistic are you about those eco-cities and low-carbon pilots? Do you think this sort of pioneer, demonstration approach is helpful for the whole country’s development?
CB: I think it is. We talk a lot about best practice from around the world and in terms of existing buildings and energy efficiency, obviously much of that comes from more mature markets, where there’s been the opportunity to test that. But in the new development areas, I think there is an opportunity for China to lead the way a bit, because it is one of the countries where we’ve got this very rapid urbanisation, and there’s an opportunity to introduce a lot of the new features and make sure cities comply with sustainability objectives.
Is this specifically a good way to do it? I think there’s a mixed bag of some very good projects and some that are using the label for marketing purposes more than anything else. But I think the better ones have really bought into the concept, and everyone uses the Tianjin eco-city as the flagship example of that. The ones that have done well are implementing in accordance with their plan, which is critical, because in a lot of other projects there’s a lot of talk about what they’re going to do but it doesn’t actually get executed.
OB: Some have criticised the high-tech approach to green building in China – the desire to have the flashy building, rather than focusing on the lower-tech things that can perhaps make a bigger difference. Where do you stand on that?
CB: You’ve got to get the right balance. The high-tech side is important and we can’t really avoid that because we’re in a high tech world now. Things like the building management systems and intelligent control systems that are being introduced obviously have to be there. But we need to make sure that the high-tech side is balanced with the low-tech side – good design and some of the passive design aspects of the building, like natural ventilation and lighting, some of the very straightforward stuff.
We’ve also got to address the mindset of the industry and the way it looks at managing and maintaining buildings. If it’s just focused around the high-tech, high-end side of things, that’s a very small proportion of the market overall.
OB: How much is the progress that you’re seeing on the ground is driven by central government targets, in energy efficiency for example?
CB: There’s a definite feeling in the industry that the government is trying to lead the way and the more sophisticated developers are definitely looking to support that.
But ultimately there are other more commercial aspects of it as well – cost savings is one part of it, but also certification and accreditation. As the market gets more competitive, developers will focus on certification initially as a competitive advantage, but I think longer term it will be a more defensive position. That is, if you don’t have it, your building is not even going to get on the list of major tenants – you need it just to stay in the game. I think that’s also a motivation for those developers who are looking to target especially the multinational clients.
OB: There is constant speculation about the long-term sustainability of the Chinese property market. Does that have any impact on how much or how little attention developers pay to green issues?
CB: Yes, it probably does. The market is going through an evolution phase at the moment. We went through a very rapid growth period between 2005 and 2010, but I think we’re now moving towards a much more sustainable approach. The government’s regulations around the residential sector are really focused on creating a long-term, sustainable market as well as a housing hierarchy, through from the rural affordable housing into the more mid, high-end market. Clearly the green side of things needs to be reflected in the design aspects of that in the longer term.
One of the positive things is that, as the government moves forward, it’s looking at consolidation in the industry. As we move into next year, and given the problems around liquidity for some of the smaller developers, I think we’re going to continue to see restructuring and consolidation, with the bigger developers getting bigger and some of the medium-sized players emerging as much bigger operators. That will very much assist and support the green agenda in terms of those more sophisticated developers being able to lead the way.
The government is also trying to move away from a bank-lending driven market to more of an institutional market. We are going to get new domestic institutions providing capital in the construction market, like the insurance companies, and I think for them, longer-term sustainability and energy efficiency will be much more important and that will also help drive the process.
That could be quite a significant change. We haven’t quite seen it yet, but they’re on the verge of getting involved – regulations now allow them to get into the property sector. So as that capital source changes, I think that will certainly help: some of the smaller developers will now have an exit through the insurance companies and the insurance companies will be insisting that buildings are better specified and have greener features.
Olivia Boyd is assistant editor at chinadialogue.
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