What to consider in the natural environment for best long-term results
Successful long-term property investment is aided by having little or no natural disasters to deal with. Stable environments attract long-term investment and jobs, which in turn drives demand from long-term residents, driving sustained growth in both capital gains and rental yields. Natural disasters, such as flood, bushfires, tropical cyclones, volcanos, earthquakes, and tsunamis happen throughout the world. However, unless they can be managed down to a low risk and more importantly a low impact, they generally won’t be a destination for long term investors.
Recently we have seen the impact of earthquakes and volcanos in Tonga, Indonesia, Italy, and the Spanish Canary Islands. Plus, there have been many more natural disasters in the world that haven’t even made headlines. The cost to repair key infrastructure and temporary accommodation can be very high as well as the impact on the nation’s GDP. Luckily Australia is on its own continental tectonic plate, and is therefore very stable in comparison, even though Melbourne did have a very minor ‘intra-plate’ earthquake last year with a few bricks falling off some very old buildings.
Bushfires, as devastating as they are, don’t occur in urban areas, and cause much less long-term damage than water. Houses in Victoria near forests have a ‘BAL’ rating (Bushfire Attack Level) – this describes the standards a house has to build to minimise the risks. In Resimax’s Eynesbury development, due to the magnificent adjacent Grey Box Forest, where the local fire authority manages fuel load levels, houses have the lowest BAL rating. Over time as more houses are built in the open areas, this minimal BAL rating may even be removed during the usual semi-annual BAL rating re-assessments.
Certain parts of Australia are subject to tropical cyclones (TC’s) – usually the northern tropical areas only. In 2006 a Category 5 TC called Larry hit Qld (the TC was bigger than the entire UK) and caused about AU$1.5B worth of damage at the time. Another Category 5 TC called Yassi hit northern Qld in 2011 and caused more economic damage than TC Larry did. According to the United Nation’s IPCC (The Intergovernmental Panel on Climate Change), due to climate warming we should expect both a greater frequency and intensity of storms throughout the world in the coming years.
The areas hit hardest by TCs are usually coastal areas, often with residents losing metres of land off their backyard into the sea during king tides overnight. This results in houses losing their footings, making them uninhabitable. Alternately, expensive sea walls are required to be approved and then paid for by the owner as a temporary measure before the house is ultimately swallowed by the sea. Any of these scenarios ends up with lower valuations and lower yields (if at all it can be rented). According to CoreLogic’s (Australia’s leading property analysis firm) latest report – ‘Coastal Risk Scores for Financial Risk Assessment’, AU$25 billion dollars’ worth of coastal property is at risk not just from TC king tides, but from the constant wave action and inundation every day from rising sea levels.
Australia has also been in the international news lately with the vast flooding from La Nina linked rainfalls spread across Southeast Qld and Northern NSW, with some areas experiencing several ‘1 in 100 years’ floods in the past couple of years, and some places even experiencing a ‘1 in 1000 year’ flood event. This will require vast amounts of time, money, and energy just to get back to where they once were. Hence many businesses and residents are leaving to build their futures in more stable areas.
According to Dr Francis Chiew (senior hydrologist at Australia’s national science agency, CSIRO) “Floods are the costliest natural disaster in Australia, averaging $8.8 billion AUD per year…cascading societal impacts are evident in QLD & NSW”. These floods are linked to more ‘tropical’ style weather patterns moving south along the coast. Fortunately, Melbourne is too far south to get ‘tropical’ type weather patterns, and in fact receives a lot of its air from the south, which is much cooler and dryer.
A senior climate researcher at CSIRO, Kevin Hennessy recently stated that “The federal government has a National Climate Resilience and Adaptation Strategy, all states and territories have climate adaptation plans, most local councils have climate adaptation plans”. However, he did concede that some regions were naturally more vulnerable than others, and that more needed to be done to improve resilience.
Speaking with Gareth Jones (Director of Development at Resimax) about mitigating flooding risks, he says that Victoria is leading edge in terms of managing flooding risk (even though Melbourne doesn’t get the intensity of tropical downpours like QLD does). An example is Newbridge South in Wallan, where extensive earthworks were undertaken with ‘controlled fill’ to provide stable and raised areas for home building. Hydraulic engineers carefully used highly sophisticated computer models to scope ‘retardation basins’ for storm water and flows into swales and wetlands to comply with ‘pre-development flows’ for net zero impact. As a developer, Resimax chooses to turn these into amenities – such as walking and bike paths around the wetlands, plus promoting biodiversity in the local environment.
Unlike most developers, Resimax is also its own customer – choosing to keep a portion of all the houses it builds for the long-term capital growth and rental yields they will deliver, and hence looks for locations with minimal natural disaster risks and impacts to ensure successful long-term gains for its home owners.
Disclaimer: This article is for general information purposes only and should not be taken as advice. Always seek professional advice from suitably qualified professionals familiar with your situation and goals.
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Steven Molnar is Head of Research and Education for Resimax group. With over 25 years in property and finance in Australia and internationally, he brings a unique perspective to each interview with interesting guests and property insights. Resimax group is one of Australia’s largest private property developers, Resimax Group Investor is headquartered in Kuala Lumpur MY.