Real Estate: Private Savings As a Way To Finance Decarbonization

Belgian economist Rudy Aernoudt advises industry professionals to “mobilize the savings of private individuals, who put too much aside” in France.
In Belgium, a market subject to the same decarbonization imperatives as France, real estate companies must “invest 3% of their sales (turnover) each year to finance their transition” in line with economic, social and governance (ESG) criteria, according to Belgian economist Rudy Aernoudt, speaking at a morning of debates organized in Paris on December 17 by Building Minds, whose real estate portfolio management platform is used by European institutional investors. According to various studies on the subject, this annual effort amounts to between 3% and 5% of a company's sales, depending on its location and sector of activity.
The first problem is that around 20% of developers and other real estate professionals in Belgium can't afford to do so, because “they don't have enough equity capital, they don't make enough profit”, sums up Rudy Aernoudt. To put it plainly, their business doesn't generate enough cash flow to undertake energy renovation work, invest in a Building Management System (BMS)... on their own. Nor are their reserves sufficient to make up for a shortfall in cash flow. The second problem is that 84% of real estate debt in the eurozone is bank debt, according to JLL. European banks, particularly in France, are becoming increasingly demanding against the backdrop of the real estate crisis, from the residential to the office market. This is illustrated by the rising levels of pre-marketing of new homes demanded of residential developers.
At a time when the French government is tightening its budget, and while waiting for a 2025 budget to give real estate players some short-term visibility, and when the value of their properties - particularly office properties - is falling, in the case of family offices for example, the solution lies in their ability to “find other sources of financing, via pension funds, private equity, etc.” illustrates the economist.
Private debt funds are another example. But like all alternatives to traditional bank financing, this solution is more expensive for borrowers. Debt funds developed strongly in the wake of the 2008 financial crisis, which severely restricted access to credit for companies, particularly very small businesses.

To rise to the challenge of decarbonization, the circular economy and energy sobriety, professionals in the real estate sector, but also in the building industry and other related economic sectors, need to “mobilize the savings of private individuals, who are putting too much aside”, he insists.
The French household savings rate currently stands at 18%, compared with 20% in Germany and 13% in Spain and Italy, according to the French Banking Federation. This rate could fall as of next February. Interest rates on the Livret A and other savings products, which keep pace with falling inflation, will then have been adjusted as announced by the Banque de France. All this against a backdrop of lower key interest rates from the European Central Bank. All of which should give real estate agents, developers and real estate companies more room to maneuver... Real estate crowdfunding already enables them to obtain financing from private individuals in addition to banks. But beware: platforms in this young sector are not immune to the current crisis in demand for housing and office space. This is evidenced by the rate of defaults on repayment of borrowed sums and interest payments to individual investors, which has increased tenfold in just two years, according to the specialist website Argent et salaire.

But nothing is certain. “If we do nothing, we'll be heading straight for the wall, as companies and their know-how will disappear,” warns Rudy Aernoudt. This is already the case for the production of single-family homes and multi-family housing, given the increasing number of bankruptcies and redundancies, according to the Pôle Habitat FBB and the Fédération des promoteurs immobiliers (FPI).
In Europe, the energy renovations required to decarbonize real estate are estimated at an average of €14/m2/year, according to the Carbon Risk Real Estate Monitor (CRREM) , developed by a European consortium and financed by the European Union. There are wide disparities, particularly by asset class. The average investment ranges from 18€/m2/year for shopping centers to 10€/m2/year for housing.

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