What toll will Queensland’s floods take on local property prices?

Queensland’s devastating floods have left a scar on the state that will take quite some time to heal. The loss of human life, destruction of homes and livelihoods and the overall financial impact will take many months to recover from and many are questioning what a natural disaster of this magnitude will mean for property prices.

A recent article in the Sydney Morning Herald reveals that, according to credit ratings agency Fitch, while the full impact of the floods is difficult to measure right now, it is likely that house prices will drop as banks become cautious about lending and household budgets are strained.

Fitch says damage to properties could “temporarily or permanently affect” borrowers’ ability to pay and cause “lower than normal recovery rates for damaged properties.”

Should homeowners be unable to meet their mortgage commitments, the issue will be further compounded as mortgage insurance policies do not cover flood damage, meaning the banks will be hit with large losses.

Associate director with Fitch James Zanesi says, “Borrowers who have been directly or indirectly affected by the flooding will likely experience some financial distress in terms of property damage, increased living expenses, and potential loss of income.”

“Moreover, the market value for properties located in the flooded areas might now be permanently adjusted downwards due to future flooding risk.”

The impact of such an event on Brisbane house prices was evident after the historic 1974 floods says REIQ managing director Dan Molloy.

“In 1974, across all of Brisbane there was some downward pressure on house prices,” he says. “It also coincided with a credit squeeze around that time.”

Optimistically though, he adds that. “The market overall … had some level of recovery within 12 months.”

Only time will tell whether or not home buyers and investors can move on and continue to support the Queensland property market, but Molloy believes Brisbane residents will always be drawn to the city’s river.

“Although the next few months will be difficult, at the end of the day there still will be that overall attraction of being close to the river because of the key role it plays in Brisbane’s economy,” he says.

Molloy predicts that rents will soar in the immediate future as people who have been displaced by the floods seek alternative accommodation.

But property values could be hit hard for some time to come according to local agents. LJ Hooker Indooroopilly principal real estate agent Scott Gemmell says some flooded suburbs could take a decade or more to regain their popularity with buyers.

“In the short period it probably scares me a little; what the flood will do to house prices. In some cases, houses will be unsellable,” he says.

Not only could the stigma of the floods negatively impact Brisbane house prices (which dropped by 1% in November to $432,900 according to RP Data), Gemmell also raises the issue of a market that is likely to be inundated with homes for sale as listings surge over the next month.

Director of SQM Research Louis Christopher says, “The medium term is actually negative for property owners affected by the floods as a high number of potential home buyers will likely avoid those localities that are in the flood zone…

“This is actually very bad news for property owners in Brisbane’s affluent localities such as New Farm, where many prestige properties have been affected.”

RMIT Property & Valuation lecturer Matt Myers says the viability of the post-flood local economy will largely determine how property values perform.

“If there are jobs, people want to stay, and if enough people have adequate insurance to rebuild, then these areas will do well. But I expect some of the rural areas may never fully recover.”

RP Data’s Cameron Kusher says houses close to creeks that flooded could drop in value by as much as 10% and that property prices across the state will only grow at the rate of inflation – around 2.8% per annum, “if not less,” he says.

Australian Property Monitors economist Andrew Wilson predicts a recovery in Brisbane property by the end of the year, on the proviso that there’s no downturn in the overall economy or any further debilitating natural disasters.

“We’re expecting a pick-up in the Brisbane market around about the third quarter this year. That’s probably been postponed a little bit – but only by a quarter,” he says.

You can read a great article from George Kafantaris, director of Metropole in Brisbane, about the effects of the floods on the property markets by clicking here:


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au

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