Cleaning Up After The Floods
As the industry comes to terms with astronomical challenges presented by Australia’s floods disaster, minds will inevitably turn to how the industry, authorities and the public could have been better prepared.
In the immediate aftermath, even experienced property managers reported uncertainty about the circumstances in which tenancy agreements could be ended and what constituted a ‘non-liveable’ property. Authorities like Queensland’s Residential Tenancies Authority could not be reached for several days and no information was posted on their website to assist the profession or its customers.
Individual agencies found it difficult to respond to the needs of their customers, given that their own premises were flooded, staffs were unable to reach their place of work, or essential utilities such as power and telephony had been cut.
The general industry response was mixed.
Several networks responded with fundraising appeals and initiatives for the coordination of property management volunteers and tradepeople. Others appeared to do nothing. Some even complained, through social media, their business turnover would be reduced – while people were dealing with unimaginable losses.
One major real estate network was revealed to have no contingency plan for its national website, which remained unchanged for over a week as the disaster unfolded.
Intense focus immediately falls upon the insurance industry amid claims that insured losses will likely overtake recent catastrophes like the 2009 Victorian bushfires, the 2007 Newcastle storms and last year’s hail deluge in Melbourne. Together, those events cost more than $1 billion.
Four years ago, 12 per cent of policies in Australia covered flood damage. The Insurance Council says that figure is now closer to 50 per cent. A 2010 Choice survey revealed that of 43 Home and Contents policies it reviewed, only 19 had flood coverage, 19 didn’t, and 5 offered it as an optional extra.
Despite Prime Ministerial pleas for insurance companies to reflect the spirit shown by Australians who assisted total strangers with their recovery, they are not going to pay out on policies that never existed – if they follow previous form.
Despite state and federal government attempts to embarrass insurers into paying flood insurance, reinsurer Munich estimates that, even if the industry were to entertain ex-gratia payments, costs would run to billions of dollars, potentially rendering the industry insolvent.
So, what of the impact on the marketplace itself?
Sales agents will immediately find themselves struggling to accurately estimate property values, will be dealing with rescinded contracts, and banks will renege on finance approvals. In 1974, after the last major flood, banking support evaporated and buyers found it difficult to settle purchases.
Changed financier attitudes to flood ravages areas will lead to withdrawal of funding and increased lending thresholds, magnifying any reductions of property values and further reducing the pool of potential buyers.
Property Managers are already finding the floods have triggered impossible levels of demand for tradespeople and civil contractors as people look to rebuild their homes and businesses, and the state attempts to rebuild infrastructure. They’ll deal with the best and worst of human nature amongst tenants and landlords, and, preside over rent and compensatory negotiations for months to come.
The Australian reported that one veteran Brisbane agent recalls homes struck by the 1974 floods were discounted in price by 50 per cent initially. Discounts fell to 30 per cent of pre-flood prices within about a year, and, within five years, prices recovered to within 10 to 15 per cent of pre-flood levels. An alternate view suggested prices to a full six years to recover after the 1974 floods.
But confidence recovered then, in part, due to the belief that construction of the Wivenhoe Dam would mitigate future flooding.
If past precedent can be relied upon, the following is possible:
- Property values could be halved in the worst affected areas of Brisbane
- Rents may soar as people scramble for scarce accommodation
- Apartment buildings with damaged safety systems, ventilation systems and lifts could be rendered ‘unliveable’ or ‘unfit for safe habitation’ for six weeks or more.
- Landlords will be forced to pay off mortgages on investment properties without being able to collect rent
- Mortgage defaults will rise as increased living and recovery expenses take effect
- Banks will experience lower recovery rates as they repossess and sell damaged properties
- Buyers will find it difficult to settle transactions entered before the flood
While all major banks have activated disaster relief packages that include a freeze on mortgage repayments for up to three months, many people will face ‘affordability shocks’ due to increased expenses as they begin rebuilding their lives. The self-employed are particularly exposed.
However, two positive influences remain inestimable.
One is the renewal of community spirit brought about by recovery from hardship and new community bonds forged in the process. The other is the economic boom brought about by post disaster rebuilding and job creation. Both will play a major role in Queensland’s recovery.
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