As a resident of Brisbane, I witnessed the recent devastation caused by the largest flood event we have seen since 1974 firsthand. Working in the property industry on a daily basis, I have had countless people ask me what will happen to the residential property market as the flood waters recede and the massive task of cleaning, repairing and rebuilding is undertaken.
BY GEORGE KAFANTARIS
For those homeowners and investors who do have a property that’s been flood damaged, one of the first things you should look into is your insurance policy. Unfortunately, some companies will not insure against floods, so check your policy carefully and if in doubt, call their helpline. As an investor, check that you have adequate landlord insurance for loss of rent.
It’ll also pay to find out if you’re eligible for any of the relief assistance that’s being offered by many finance companies.
Of course more important than material possessions is human life, so make sure you have your property inspected by a professional to ensure it’s safe before going in to inspect damage or undertake any works. And as a landlord, remember to be sympathetic and courteous to your tenants as emotions will be running high at this time.
Now that a couple of weeks have passed since the floods, one of my main concerns is the misinformation and inaccurate reports floating around, particularly the contradictory speculation regarding house prices. Some are suggesting that values for the residential market could be hit with an immediate fall of 50 per cent, while others say little impact will be felt. A few are predicting that the market will be inundated with properties as nervous residents decide to sell up, causing prices to fall considerably in the coming months.
After spending the last two weeks on the ground speaking to as many flood victims as possible, the one universal comment I’ve heard is that none of them intend to sell. Of course I’ve only spoken to a fraction of Queenslanders who have been affected, but my point is that we cannot generalise about what homeowners will do and what impact the floods will have on property values – every person and every location is unique and will respond differently.
When it comes to the property markets and what we might see eventuate in the next few months, there’s no denying that the floods will have some impact. The question is, just how extreme will it be?
According to Real Estate Institute of Queensland managing director Dan Molloy, while the 1974 floods might provide some insight into what could occur this time around, Brisbane is a very different market now.
Analysts have observed that prices in low-lying suburbs could see values drop by as much as 10 per cent, going by what happened in 1974. However Mr Molloy says, “We have to keep in mind that in ’74 there was a credit squeeze that certainly impacted the market decline. There’ll be some price pressure in relative terms, but the population has doubled since ’74, and 98 per cent of homes in the region were not affected this time.”?Additionally, he notes that the market had rebounded by the end of the first quarter in 1975, meaning any price declines were short lived, and buyers didn’t seem to be deterred as they were aware of the risk.?Prior to the recent floods, outlooks for the Brisbane property market were quite subdued anyway. We were already witnessing a slowdown in the cycle and many analysts were forecasting modest gains throughout 2011 of less than 5 per cent.
This type of sluggish performance is anticipated in most capital cities as interest rate rises continue to make potential homebuyers feel wary.?Property analyst Michael Matusik believes the flood will place normal market conditions on hold temporarily. He says housing in low-lying suburbs that was completely inundated, such as Oxley, Rocklea and Archerfield will experience a significant decline in value if owners attempt to sell before their homes are completely restored.?Of the 850 or so exclusive riverfront homes though, he says, “This property is tightly held and most owners are likely to renovate and stay put. Values along the Brisbane River I don’t think are likely to change much.”?Optimistically, Mr Matusik thinks that the floods could restore confidence in Queensland’s economy, with a strong rebound on the cards. ?”Those affected will try to rebuild their lost wealth, which in time will generate demand in retail, construction and other labour-intensive industries, resulting in a stronger Queensland economy than otherwise would have been the case.”?For investors who can see beyond the immediate issues caused by the floods, Mr Matusik says there are some potentially good buys to be had, with some owners already looking to sell partially flooded homes for 15 to 20 per cent less than 2010 prices.?”For fully flooded homes, discounts over 30 per cent would be worth looking at. This assumes that improvements are actually made, via physical barriers and improvement management systems to help alleviate future flooding,” he says.?The fact that we’ve had so many enquiries from people wanting to get into the market is somewhat reassuring. It suggests that buyers haven’t been scared away from the Queensland market in droves and prices should remain stable or experience small declines.
RP Data analyst Cameron Kusher believes that “buyers will still aspire to buy…” in lifestyle suburbs such as Rosalie, Paddington, Milton, Chelmer and Graceville.?Although property prices might take a bit of time to recover, one thing is certain; rents are set to soar in Queensland as the many residents who have been displaced seek alternative accommodation while their homes are rebuilt.?The inundation of people into the already tight rental market will cause rental prices to rise rapidly, with reports of up to 10,000 households seeking temporary refuge. That’s on top of the seasonal pressures caused by university students looking for accommodation and of course the numerous tradespeople who will travel from interstate to lend a hand in rebuilding efforts.?Some are suggesting that rents will increase by as much as 10 per cent or more in the short to medium term, particularly in suburbs of Brisbane near flood affected areas. Additionally, demand for fully or partly furnished rentals close to the Brisbane and Ipswich CBD will rise considerably.