Blog

February 14, 2020

Property Investors Need Better Understanding Of Climate Risk

Climate change is on everyone’s minds at the moment, so we thought we’d discuss this in a bit more detail. Will climate affect property investment? The following is based on recent research and events:

The long-term effects of Climate Change such as bushfires, heatwaves, and flash flooding are already being experienced in Australia. According to data from the Bureau Of Meteorology, 2019 was Australia’s hottest year on record and twenty of Australia’s warmest recorded years were all in the most recent 25 years.

With around 80% of Australian homes located within 50km of the coastline, chronic industry-wide disruptions and fluctuations are extremely likely as many of these properties become directly exposed to extreme weather events such as rising seas. These environmental concerns and their impact on insurance premiums are important factors that are going to have an extremely dramatic effect on the otherwise robust appeal of investing in the Australian property market.

That means there is a growing need for property investors to understand the variables of Climate Risk, while also learning the most accurate methods of measuring its likely impacts. This a complex and evolving challenge that will become imperative for property investors to remain competitive in the not too distant future. By improving their understanding of threats posed by climate change, savvy property investors will be able to mitigate most investment risk when buying property.

How Will Climate Risk Affect Property Investment?

Insurance premiums are currently based entirely on historical analysis of the property with no consideration for any of the possible climate risks in the future. While some involved in real estate have started recognizing and managing risks related to climate change, the majority of the industry is still relying on the insurance companies to provide them with short term, financially-oriented cover.

There are emerging opportunities for property investors and investment managers to learn how to better assess the climate risk of both assets and portfolios by navigating the potential impacts of an increasingly warmer environment. Ultimately, the effects of climate change must become a quantitative and impact driven part of the investment decision-making process. To best understand how it will impact property prices, the property investment industry must have an intimate first-hand knowledge of how climate change will directly affect valuations in the future, while also considering market and asset liquidity.

What Is The Likely Effect Of Climate Changes In South East Queensland?

If you assume that global emissions of greenhouse gases will continue their on trend increase along their current trajectory, scientists predict that the average temperature globally will have risen between 4 and 6 degrees above pre-industrial levels.

The direct results of global warming in Queensland will likely be a part of everyday life by the year 2100, as the local councils for Brisbane, the Gold Coast, Sunshine Coast, and Moreton Bay will all experience varying degrees of financial burden caused by the coastal inundation of rising sea levels.

Extreme weather events will most likely have some kind of impact in these areas, with soil subsidence caused by strong winds and drought being the most expensive issue. Other possible risks for natural hazard include flooding rivers and bushfires.