Real estate study by Realo, CFP Green Buildings, and ING: Bargains to be found in the renovation market

There is a great opportunity in the renovation market. An analysis by Realo, CFP Green Buildings, and ING Belgium shows that families who invest in an energy-intensive property in the long term often do better than those who buy an expensive, energy-efficient home. The financial benefit for certain properties can amount to €57,000. The greatest profit is mainly in renovating the most energy-intensive houses to an EPC-label D. Renovating from an EPC-label of D to A remains advantageous for detached houses and terraced houses, but the financial benefit significantly decreases. For apartments, renovating from label D to A can even turn out to be negative.

An analysis by Realo, CFP Green Buildings, and ING demonstrates that buyers who purchase a renovation property at current market prices and renovate it to be completely energy-efficient, in the long term, do better financially than buyers who opt for an expensive, energy-efficient house. There is a great opportunity in the renovation market. Homeowners would also be wise to first energetically renovate their energy-intensive property before selling it.

Realo, ING, and CFP Green Buildings have combined different data sources, including renovation costs, savings on energy bills, government support measures, and the impact of an energy renovation on property value, to see if it is financially advantageous to choose a renovation property today or whether it is better to go for an expensive but energy-efficient house.

They have made the estimate for 3 types of housing, a detached house, a terraced house, and an apartment, all with an EPC-label F that are fully renovated to an EPC-label A. The advantage amounts to an average of €57,000 for a terraced house, €50,000 for a detached house, and €12,000 for an apartment. The increase in property value and the lower energy bill thus more than compensate for the cost of renovation. These are updated amounts. In the analysis, all future benefits were adjusted for an average annual inflation rate of 2%. Although the data and analysis specifically relate to Flanders, a similar effect can be expected in Wallonia and Brussels, as these two regions will follow the example of Flanders and will also mandate energy renovations in the coming years.

Greatest gains with the most energy-consuming houses

The greatest gains are primarily to be made by renovating from label F to D. The better your EPC label, the less attractive it becomes to make extra efforts. This is because the value of your property increases less rapidly as your EPC score is already better. For houses at the lower end of the market, the EPC score has a greater influence on the price. Currently, a D-label is considered the standard. Properties with a lower score, thus falling under the renovation obligation, are often seen as inferior. Buyers expect a significant price discount to compensate for the lower energy score. For energy-efficient houses, a better EPC score still leads to a higher price, but this study shows that the difference is smaller.

The analysis also reveals that the financial advantage is greater for terraced houses than for detached houses. With terraced houses, the EPC score has a greater impact on the property value than with detached houses, especially at the higher EPC labels. A possible explanation is that terraced houses are mainly located in urban areas, where a more financially capable buying public lives that places great importance on a good EPC score.

Another notable finding is that for apartments, the return can even become negative if you renovate from EPC label D to A. Many apartments are purchased by investors with the intention of renting them out. A better EPC label does not always translate into a much higher rent price. Tenants often live in the apartment only temporarily, making them less willing to pay higher rent for a better EPC label. This affects their return, making investors also less willing to pay extra for a better EPC label.

Additionally, in apartments, you can mainly reduce your energy bill by replacing windows and insulating the exterior walls. However, after these steps, it becomes increasingly difficult to further reduce your energy bill. Moreover, the total cost and complexity of a full energy renovation to label A in apartments are relatively high.

Why you should still proceed with renovating to EPC label A

Since the greatest gain is to be had with a renovation up to label D, should you then stop renovating once label D is reached? Not exactly. Much stricter regulations are coming our way in the coming years. At this moment, the renovation obligation dictates that you must renovate to at least label D, but this bar will be set increasingly higher in the coming years. In Wallonia and Brussels, too, stricter obligations are forthcoming.

The price gap between energy-consuming houses and energy-efficient houses widened further in 2023. The renovation obligation has had a clear impact on the demand side of the market. While the real estate prices of energy-consuming houses have decreased, the prices of energy-efficient houses with an A/B label have continued to rise. Due to the upcoming stricter regulations, the price difference between houses with an A label and those with lower labels is likely to grow even larger in the coming years.

This will be crucial to achieving climate targets. By 2050, our entire housing stock must be energy-neutral. To achieve this, the renovation pace will have to significantly increase in the coming years.

To calculate the financial benefit, all costs and benefits associated with the renovation are taken into account, such as renovation costs, the increase in property value, annual savings on the energy bill, the cost of the loan, and support through the My Renovation Premium for a couple in the highest income category without children. It is assumed that the owners will stay in the house for another 20 years, with the renovation taking 3 years. For the remaining period of 17 years, they can benefit from a lower energy bill. At the end of the 20 years, they sell their house. It is assumed that the added value due to the improved EPC score will still be the same in 20 years as it is today. Future financial flows are each time discounted at an estimated annual inflation of 2%.