Brisbane property market set to dip in aftermath of floods

The floods currently affecting Australia, described by the Prime Minister as potentially the worst natural disaster the country has ever seen, are set to severely affect property prices.

Property in Brisbane, the capital of Queensland which is the hardest hit state, is likely to be affected the most, according to some experts.

More than 1,000 unsold, unfinished or yet to be started apartments on the Brisbane River estimated to be worth at least $800million have been damaged by the floods.

Credit ratings agency Fitch said that while the full impact of the Queensland floods is impossible to gauge at this point, they are expected to have a negative impact on house prices, borrowers and banks.

Property damage may temporarily or permanently affect borrower’s ability to pay and could cause ‘lower than normal recovery rates for damaged properties’, the credit agency warned.

Losses for banks could also mount if people can’t fully repay loans. Fitch said lenders’ mortgage insurance, that is insurance held by the banks themselves, does not cover flood damage.

‘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,’ said James Zanesi, associate director in Fitch’s structured finance team.

‘Moreover, the market value for properties located in the flooded areas might now be permanently adjusted downwards due to future flooding risk,’ the agency said.

Real estate analysts predict discounts of up to 50% will need to be offered to sell property in some of the worst hit areas on the Brisbane River, while the rents for homes in other parts of the city are predicted to increase sharply as people seek alternative temporary accommodation.

Fewer riverside apartments have been flooded than houses, but some apartment blocks have had to be evacuated because of damage to basement wiring. As a result, some landlords are now forced to pay off mortgages on investment properties without being able to collect rent.

The Real Estate Institute of Queensland reviewed the way the property market behaved after the devastating 1974 floods, and the news for home owners after the latest disaster is not great.

‘In 1974, across all of Brisbane there was some downward pressure on house prices. It also coincided with a credit squeeze around that time but overall the market had some level of recovery within 12 months,’ said REIQ managing director Dan Molloy.

‘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 added.

He said agents were expecting huge prices for rental properties across flood affected Brisbane and regional centres. ‘The demand will put upward pressure on rental rates. How quickly that manifests itself, I tend to think that the demand pressure will be there quite quickly because of the fact that so many people need to find alternative accommodation,’ he explained.

According to real estate agent Scott Gemmell it could be 10 to 15 years before some flooded suburbs regain their popularity. ‘In some cases, houses will be unsellable,’ he said.

Queensland Premier Anna Bligh said 28,000 homes would need to be completely rebuilt following the floods, while many houses would be uninhabitable for weeks, months or even years.

SQM Research director Louis Christopher also believes the impact of the floods will weigh on prices. ‘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,’ he said.

Ray White chairman Brian White said after the Brisbane floods in 1974, the riverfront property market regained confidence in the belief the problem would be solved by the Wivenhoe Dam, which was built across the Brisbane River to mitigate flooding. But that failed to protect property this time.