Rewarding green home buyers will drive sustainability in our country
Portia Letlape
Absa Executive Head of
Product for Home Loans
Only 5% of South African adults think climate change is a priority, according to a Presidential Climate Commission (PCC) survey released in September.
Too many of us rank environmental problems very low on the list of challenges facing our country, considering the dangerous weather events we’ve faced recently such as severe cold and flooding in KwaZulu-Natal.
In fact, the United Nations Development Programme revealed in a report on 11 September 2024, that as we reach the halfway point since the adoption of the 2030 agenda and Sustainable Development Goals (SDGs), the 2024 SDG Report progress assessment states that the world is significantly off track. Out of the 169 targets, only 17% of them are on track for 2030, with the rest showing moderate to severe deviations, stagnation or regression. Even worse is that the Africa Sustainable Development Report shows that only 6% of the 32 measurable SDG targets reviewed are on track to be achieved by 2030.
The good news is that we can start to be greener in, and place less strain on, our planet by changing the homes we live in.
“Homeownership is an opportunity to incentivise people to practise sustainable measures,” says Portia Letlape, Head of Product at Absa Home Loans. “This is why Absa is rewarding people who develop or buy homes with distinct green characteristics.”
Green buildings represent a significant low-carbon investment opportunity because they can save electricity and reduce water consumption. Although the supply of green buildings in the country is growing, the green building market is still in a nascent stage.
In response, Absa launched an eco-home loan product with the introduction of the Absa Eco Home Loan with Balwin properties in 2020. Absa has now enhanced this proposition by adding a rebate to its offering, with the support of the International Finance Corporation. This is a key move given the importance of living green in our young democracy.
Customers who buy a home with a loan from an Absa-approved Excellence in Design for Greater Efficiencies- (EDGE-) certified development, will receive a rate concession on that loan. When the development from which the customer buys the property has reached either the preliminary EDGE certification stage or the final EDGE certification stage, the customer will receive a rebate at each stage.
“Our Eco Home Loan can drive the development of houses with green features and the rebate will encourage South Africans to live in them,” says Portia.
Learn more about the Green Building Council of SA (GBCSA) and EDGE?
How we got here
Absa first embraced the green market some years ago with the goal of promoting best practice. Four years ago, the bank launched its first green mortgage product, the Eco Home Loan, in collaboration with SA’s largest sectional title unit developer, Balwin Properties. If you bought a property in an EDGE-certified development, you were given a rate concession and you got to save on interest costs.
The Eco Home Loan now has an attached rebate, which is a product feature enabled through the United Kingdom (UK) International Finance Corporation (IFC) Market Accelerator for Green Construction (MAGC) programme. Each customer receives a rebate of up to 3% of their loan amount at a maximum of R55 000, which is paid into their home loan account. The rebate further reduces the principal debt and saves customers more on interest charges, making green homes more affordable.
The MAGC programme, sponsored by the UK, provides blended concessional finance and advisory support to catalyse the development of green buildings across emerging markets.
Absa secured a R4.5 billion investment from the IFC to support the expansion of green buildings in South Africa (SA), along with blended finance support, in the form of Performance-based Incentives (PBI) from the MAGC programme.
The PBI allows Absa to finance developers with a rebate of up to 4% on their loan amount for the construction of green buildings. It also allows Absa to finance eligible green home end users or buyers with a rebate of up to 3% on their loan amount.
The EDGE programme certifications help to standardise the design and certification for resource-efficient and climate-friendly buildings.
The IFC has estimated that the R4.5 billion investment in Absa and associated support from the MAGC programme project will help to reduce over 12 000 tonnes of emissions annually. The investment will also contribute to SA's Nationally Determined Contribution (NDC) targets under the Paris Agreement.
SA targets annual GHG emissions in the range of Mt CO₂
398-510 Mt CO₂
by 2025
398-510 Mt CO₂
by 2030
“It’s critical that we as a financial institution play a role in SA’s mission to meet GHG emission targets,” Portia says. “We cannot miss the opportunity to make an impact in green living and will use an assortment of programs to do so.”
The IFC is supporting Absa with advisory services to improve its capacity to originate and manage loans for the development or retrofits of certified green buildings. Absa will also leverage the IFC’s expertise to gain further knowledge and enhance internal capacity to expand its green buildings business segment.
The R4.5 billion investment builds on the IFC’s R2 billion loan in 2022, used to support Absa’s growth in affordable housing finance in SA. It aligns with the IFC’s strategy to enhance climate change resilience in South Africa by investing in inclusive and sustainable projects.
Kamini Ramsamy
Head of Credit Risk at Absa Home Loan
Navigating the market
There is optimism that numerous homebuyers will apply for Absa Eco Home Loans, especially now that interest rates have started to fall. In September 2024, the Monetary Policy Committee (MPC) cut the repo rate by 25 basis points. Absa is the first in SA to launch rebates for green mortgages.
Kamini Ramsamy, Head of Credit Risk at Absa Home Loans, explains that affordability declines increased significantly between 2021 and 2023. “Last year, we saw the highest level of affordability declines when the prime rate was at its peak,” she says. “The affordable housing segment was most affected with affordability declines during this period.”
Homebuyers are finding ways to finance homes even if it takes time for affordability to improve. “While affordability may not significantly ease over the next year, we’ve noticed internally that more first-time homebuyers are applying for joint home loans, which makes the repayment more affordable,” says Kamini.
“This trend aligns with the emerging trends we’ve picked up in the market and with the survey results of our Absa Homeowner Sentiment Index for quarter two 2024, which shows that sole decision-making has declined since quarter one 2024 because of an increase in joint purchasing as an emerging trend. Purchasing property as a couple, with friends and with business partners is becoming more popular, allowing young and first-time buyers to enter the homeownership space more easily despite the higher interest rates.”
Global best practice
Absa’s Eco Home Loan was not only first to market in SA, but its rebate is also aligned to global best practice.
“Internationally, banks offer interest rate concessions or fixed rates, or a combination of the two, on a mortgage,” says Portia. “The finance can be used for new properties and retrofits, as owners convert their current homes into a green homes. As an example, AIB in Ireland offers a fixed rate at a lower price over five years, while the Bank of Ireland grants their customers a rate concession of minus 0.3%.”
By focusing on the adoption of green buildings for developers, with mortgages included in the transaction, Absa is at the forefront of promoting sustainable development and environmentally friendly construction practices in the country.
“This strategic move by Absa not only positions the bank as a pioneer in the green mortgage landscape but also significantly contributes to SA's Just Transition to cleaner energy solutions and a sustainable future,” she adds. “Through innovative financing and a strong commitment to green construction, Absa is leading the charge in transforming the housing market and fostering a more sustainable environment for future generations.”
Portia explains that customers are interested in the benefits of buying green homes, but more awareness will lead to a healthier uptake of products like the Eco Home Loan: “While there has been low adoption of green building in SA over the years, current challenges within local households necessitate for homeowners to consider purchasing green properties or converting their existing homes to be more water- and energy-efficient.”
Over the years, South Africans have experienced load shedding (power cuts) with the highest levels noted in 2023. The primary need for homeowners was to keep the lights on in their homes, according to Portia. With recent improvements in SA’s energy mix and at Eskom, there has been significant improvement in avoiding load shedding. While this is the case, electricity tariff rates have increased 12.74% as of April 2024, placing pressure on already stretched households. The shift towards solar for homeowners is now driven by the rising cost of electricity, which will encourage people to build homes with solar solutions included in them.
Municipalities in SA have also indicated that they may have to increase water rates with the highest tabled at 14.9%. This places further pressure on local households.
“Concerns about water scarcity in SA have also been raised,” Portia says. “This has seen municipalities implementing water restrictions in some parts of the country. It has also necessitated for households to consider water efficiency solutions in their homes.”
For developers, this shift represents a chance to lead the charge in creating the homes of tomorrow. The market is ripe for properties that not only promise lower utility bills but also reflect a commitment to sustainability.
“By integrating green technologies and designing homes with energy and water efficiency at their core, developers can meet this growing demand and set new standards for the industry,” she says. “Banks and financial institutions are poised to play a crucial role in this evolution. The development of innovative green financing products offers a pathway for homeowners and developers alike to invest in sustainable solutions. By supporting green upgrades and sustainable property developments, financial institutions can help pave the way for a brighter and more resilient future.”
How to apply for an Absa approved Eco Home Loan