Before we begin counting the financial cost of the Queensland floods, we would like to first and foremost express our condolences for all those who have lost their loved ones and homes; our thoughts are with you at this difficult time.
As a resident of Brisbane, I myself witnessed the devastation caused by the largest flood event we have seen since 1974 firsthand.
Working within the property industry up here 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.
With modern technology bringing this disaster into the homes of every Australian via the internet, social media and live news streaming as it unfolded, we were inundated with calls from concerned landlords. They had seen pictures of the suburb that their investment is in, totally submersed in water, or heard news from friends and relatives that the floods had wiped out hundreds of houses in the area.
Understandably, with many of our clients living interstate, they were relying on this information to keep them informed with regard to the threat posed to their properties and tenants. The problem is much of the panic that resulted was premature, as even though some suburbs were hit hard, when we went out to investigate the actual damage, many of our landlords’ properties were still okay.
So while technology has allowed Australia to share this burden with Queenslanders and reach out to their northern neighbours, it has also created hysteria that may be unwarranted among absentee property owners.
For those home owners 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 will also pay to find out if you are eligible for any of the relief assistance that is being offered by many finance companies, so check this with your broker or financier.
Of course more important than material possessions is human life, so make sure you have your property inspected by a professional to ensure it is 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 and they may have lost everything.
Now that a couple of weeks have passed since the floods, one of my main concerns is the mis-information 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%, 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.
I can tell you, after spending the last two weeks on the ground speaking to as many flood victims as possible, the one universal comment I have heard is that none of them intend to sell. Of course I have only spoken to a fraction of Queenslanders who have been affected, but my point is that we cannot generalise about what home owners will do and what impact the floods will have on property values – every person and every location is unique and will respond differently.
You cannot compare Toowoomba and Brisbane for instance, as both areas experienced the floods differently. Nor can you make sweeping assumptions about the Brisbane market, as 98% of Brisbane was not affected at all. The fact is there are no rules with events like these; how is it that property on the Fig Tree Pocket reach of the Brisbane River remains untouched, yet five streets further inland houses are under water? And why were so many properties that went under in 1974 saved from the damage caused by these floods?
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%, 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 will 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.
“I was working in Bulimba and Hawthorne in the early ’80s and while buyers did ask about the flood level in ’74 it did not really impact their decision to buy,” says Molloy.
“It did not seem to deter buyers so long 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%. Of course, this type of sluggish performance is anticipated in most capital cities as interest rate rises continue to make potential home buyers 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% 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.
While we do not condone opportunistic investment in the wake of such natural disasters, Mr Matusik is correct in suggesting that over the next few months, those residents who do wish to sell will be most likely be prepared to take a lower price for their properties.
And while taking advantage of another’s misfortune is not acceptable, the fact that we have 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 rather than massive falls of up to 50%.
Anecdotally, we are hearing that most residents are planning on staying put and intend on rebuilding their homes and lives. RP Data analyst Cameron Kusher believes that, “Buyers will still aspire to buy…” in lifestyle suburbs such as Rosalie, Paddington, Milton, Chelmer and Graceville.
Another draw card for the Queensland property market will be the many scenes we have witnessed and stories we have heard about the remarkable sense of community and solidarity of our residents.
Mr Molloy says, “The outpouring of community spirit has restored a social confidence in our suburbs. People will remember that for many, many years to come.”
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 is on top of the seasonal pressures caused by university students looking for accommodation and of course the numerous trades people who will travel from interstate to lend a hand in rebuilding efforts.
Some are suggesting that rents will increase by as much as 10% 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.
Median weekly rents in Brisbane were sitting at $365 for houses and $350 for units for the December 2010 quarter and we are already hearing reports of landlords near flood affected areas seeking rents of $400 plus per week.
To our clients, we would like to assure you that we are fully operational; thankfully our offices are in one of the few streets of Milton that was not inundated by water. We did lose communication during the disaster, but we have been back on the air for some time and are doing all we can to assist and reassure our tenants and landlords in flood affected areas – this is our priority right now.
One of the amazing things we see in times of hardship such as these is the fortitude of Aussies; we’re a resilient nation and always band together to help others. The Queensland floods have been no exception, as people come from all over the country to help in the massive recovery effort. We stand proud and strong and can accomplish great things and I am very optimistic about the future of Queensland and its people.
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