Real estate, what to buy? Pay attention to the energy classes
6.12.2022
Read Time: 3'
A class A building can cost on average 31% more than the average price of properties in the same city, reaching a 47% difference on prestigious properties or in the main city centers (Milan and Rome). What is the behavior of investors?
Bambagioni pointed out that there are three issues of strategic importance, which can be summarized in three concepts: energy consumption and resilience of buildings to hydrogeological and seismic events, enhancement of underutilized or unused public real estate, and urban regeneration and quality of life.
"At the EU level, buildings are the main source of energy consumption (accounting for about 40 percent of the total) and contribute 36 percent of greenhouse gas emissions. Yet, only 1 percent (EU data) of the building stock is renovated each year," said Bambagioni, who went on to say that renovation of existing buildings could lead to significant energy savings, "as it could reduce total EU energy consumption by 5-6 percent and C02 emissions by about 5 percent."
But what is the Italian situation?
"There are 12.2 million residential buildings in Italy: of these; it is possible to estimate that 6.5 percent belong to classes A1-A4 (the highest and therefore most efficient energy class, ed.), 6.7 percent to classes B and C, 9.9 percent to class D, 16.5 percent to class E, 25.1 percent to class F, and, finally, as many as 35.2 percent to class G, which is the lowest, i.e., least efficient, range," explained Patrick Albertengo, managing director of Reopla, a subsidiary of Germany's Sprengnetter.Italy's housing stock: old and outdated
Italians' housing situation could be better at the energy efficiency level. "The Italian housing stock is an 'old' stock. Most of the homes we live in, in fact, were built at the turn of the 1960s and 1970s, when the materials and technology supporting energy efficiency, as well as sensitivity to issues related to environmental sustainability, were not particularly developed," said Carlo Giordano, board member of Immobiliare.it, commenting on data from a survey conducted by the real estate portal, which shows that 76 percent of the properties currently for sale are low energy efficiency (class E or lower), up nearly 10 percent from 5 years ago.In contrast, 11 percent qualify as high-efficiency (class A or higher) and are usually new buildings. "Compared to 2017, there has been a surge of nearly 70 percent of class A homes due to a proliferation of "green" or upgraded buildings, but also to the difficulty of getting such properties off the market due to high costs," reads the research by Immobiliare. It then added that "the medium category (from B to D) has been the only one to have reduced its presence on the Italian market over time: almost a -30% in the last five years, now representing 13% of the offer," because "it is, in fact, the most attractive to buyers and the one most easily efficient."
The dynamics of the housing market as a function of the energy characteristics of buildings
While it is true that purchases and sales of more efficient properties have grown over the past few years, it should also be pointed out that these represent only a tiny part of all national transactions. In fact, according to the latest analysis on the monitoring of the dynamics of the real estate market according to the energy characteristics of buildings, the result of the collaboration between Enea, the Institute for Competitiveness (I-Com), and the Italian Federation of Professional Real Estate Agents (Fiaip), in 2021 there was a 30 percent increase in purchases of new buildings in class A1. However, the level remains far from the targets set by the European Union for 2030, and the percentage of properties belonging to energy class G is still prevalent.How much more expensive is a Class A property?
Indeed, a driver that leads Italians to buy older properties is the lower price, but it is necessary to understand whether this strategy has been profitable over the years. "From the analysis of our internal data, a class A building can cost on average 31 percent more than the average price of properties in the same city, reaching a 47 percent difference on valuable properties or located in the main city centers (Milan and Rome Center)," Albertengo explained. "The difference is also substantial when comparing renovated versus new class A properties, with the average price difference per square meter nationwide reaching 483 euros, or 25 percent more when compared to 1. 858 euros per square meter, the national average value we surveyed."Comparison of houses in Milan and Rome
Let's see what happens in concrete cases. "A class A property in the island area in Milan could be priced at around 980 thousand euros, compared to 741 thousand euros for an average property in the same city. In the center of Rome, near the Trevi fountain, it could take almost 1.1 million euros for an energy-efficient apartment, compared to an average of 825 thousand euros needed to buy a property, not in energy class A," Albertengo pointed out.Hence, is it more worthwhile for an investor to buy a class A property or a class G property and then - perhaps - renovate it to new and sell or rent it out? "For an investor with a short-to-medium-term investment vision, imagining that he or she intends to resell in 5-6 years, given current renovation incentives and a market not yet mature enough to welcome energy efficiency with strong interest, it might still be worthwhile today to invest in properties for renovation, by increasing its class during modernization (it is unlikely to go beyond class C)," replied Albertengo. "Otherwise, given the growing attention to the energy issue, even more, highlighted by the current European fossil supply crisis, an investor who sets long-term goals will necessarily have to move toward energy-optimized properties to maintain or increase their resale ability soon.
The loss of value of low energy efficiency properties
Buying a property of medium or low energy efficiency certainly does not have the same effects in the pockets of Italians. "Those who decided to invest in a class E (or lower) home in 2017, probably attracted by the affordable price, saw their property lose value, dropping from nearly 2,000 euros per square meter on average to just over 1,800, a drop of 8 percent. Class A homes, on the other hand, have risen in value by 2 percent in five years, although less than those in the average class, which have experienced a 5 percent increase in value, going from 2,073 euros per square meter to 2,168," they said from Immobiliare.it, pointing out that classes B to D have thus represented a good investment in the medium term.And that's not all. "It is also interesting to note that the percentage gap between the price of the high class compared to the middle class has narrowed by two percentage points in the last five years (going from 21 percent to 19 percent), while with the low class the price spread has increased by as much as seven percentage points (going from 25 percent to 32 percent)." according to Immobiliare.it.
But be careful, warns Claudia Scarcella, country manager of Deepki Italy: "Low efficiency, together with non-compliance with new climate regulations, can lead to a devaluation of properties that risk in this way to be no longer attractive to investors, owners, and tenants. Taking action now to improve the energy efficiency and sustainability of real estate is essential both to avoid putting the value of one's real estate portfolio at risk and to achieve the net zero target by 2050 set by the EU."
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