The last few weeks in Australia have reinforced to property owners and investors what most knew already – our climate is changing, and not necessarily in a good way.
Southeast Queensland suffered its first Cyclone in over 50 years, with Cyclone Alfred ripping into properties on the Gold Coast and causing widespread flooding across Brisbane, Northern New South Wales and as far north as Hervey Bay.
Melbourne’s outer eastern suburbs suffered bushfires and Sydney had one of its hottest March days on record, with temperatures reaching a sweltering 39 degrees recently.
That’s all within a 3-week period.
While these events are not necessarily unusual in Australia, the frequency and intensity of them is.
In a country where property ownership has been the gateway to wealth creation for many over the last few decades, climate change needs to be factored into our long-term investment decisions.
What should we expect?
While it’s tempting to think that extreme weather events won’t affect us, a recent study by the Melbourne Institute suggests it might (and already has), concluding that:
“In 2022, we found that 4.5 per cent of the population reported their home was severely damaged or destroyed by a weather-related event — that’s around one in 22 people.”
There are three main impacts of such weather events that homeowners and investors should be aware of:
- Rising cost of repairs
It goes without saying that if your home or investment property is in an area impacted by an extreme weather event, the cost of repairs can be large. Structural damage from high winds, clean-up and replacement from flooding and even total rebuilds resulting from bushfires are all a possibility, but that has always been the case.
The problem is that these weather events are projected to be more frequent and intense, so it follows that the cost of repairs when owning property will rise over time.
- Increasing insurance premiums
If the increase in damage to property from extreme weather events is rising, then insurers are going to bear the brunt of the costs. The Insurance Council of Australia reported that insurers received over 63,000 claims in the first week after the recent Cyclone in South East Queensland.
Premiums are almost certain to rise for property owners in those areas, but potentially for the industry as a whole as insurance companies look to recoup costs across the board.
- Possible market devaluation in some areas
Long-term effects of an increase in the number of extreme weather events may include certain areas losing value, as properties there become more difficult to insure and less desirable to live in.
While this is unlikely to be widespread in the medium term, it’s worth considering potential climate impacts on areas where you are looking to invest in property for long-term returns.
What can I do to mitigate this risk?
Although some of the information above can be troubling, there are some practical steps property owners can take to reduce the risk of their investments being significantly impacted by climate change. Here are a few ideas to consider:
- Assess & Plan
As you would with any property investment, do your research but make sure this includes checking things like flood plains on future projections not just historical ones.
It is also worth assessing the potential impact of climate hazards on your property assets and include this in investment decisions.
Finally, consider conducting energy audits and resiliency assessments to evaluate risk exposure and identify strategies to increase resilience and efficiency.
- Upgrade your property and keep it maintained
It’s worth considering building retrofits to ensure your property can withstand more severe weather conditions, as well as ensuring you obtain builder warranties that remain valid.
If you haven’t already, set up a regular maintenance plan to prevent minor issues from becoming major expenses.
Prioritise sustainable building practices for new builds, which can improve investment fundamentals and attract tenants. For existing properties, you could also improve energy efficiency by upgrading heating, cooling and lighting technology to manage demand and consumption.
- Take out adequate Insurance
Ensure you have adequate insurance coverage for climate-related risks, such as floods, fires, and extreme weather events. While insurance premiums are likely to increase as stated above, you could also potentially leverage any identified climate-related risks into price negotiations.
For more information, you could also check out the Your Home website on adapting to climate change via the link below:
https://www.yourhome.gov.au/live-adapt/adapting-climate-change
One final thing to consider for property investors is to diversify your portfolio geographically. Having all your assets in one region could be a big issue if that area is heavily impacted by an extreme weather event, so spreading the risk may be prudent in these changing times.
Whatever you choose to do (or not do) will ultimately be guided by your own individual circumstances. Seeking advice on your long-term property plans from a professional mortgage broker who is in the market on a daily basis is definitely worth considering.
Climate change will be an increasingly important factor in property investment in the decades to come but being prepared and informed about it will pay dividends, whatever the weather.
Loanscope have many years of experience assisting property investors in securing funding for their long-term plans – contact us for a confidential, obligation free discussion.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent
