{"id":157945,"date":"2025-05-07T16:30:55","date_gmt":"2025-05-07T06:30:55","guid":{"rendered":"https:\/\/propertyupdate.com.au\/?p=157945"},"modified":"2025-03-31T16:12:03","modified_gmt":"2025-03-31T05:12:03","slug":"the-climate-risk-of-property-investing","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/the-climate-risk-of-property-investing\/","title":{"rendered":"The climate risk of property investing"},"content":{"rendered":"

There's a property risk you probably haven\u2019t thought about.<\/p>\n

Well...maybe after the severe floods we've just experienced so far this year and\u00a0 Cyclone Alfred, you are thinking about it now.<\/p>\n

Sure you\u2019ve likely given thought to the impact of climate change on weather, our lifestyles, and what kind of future our kids will inherit.<\/p>\n

But have you ever considered climate change in the context of your property investments?<\/p>\n

It goes without saying that property investors should investigate the risks as well as the rewards of any potential investment.<\/p>\n

It\u2019s always a smart move to understand the current and potential risks before you put your hard-earned cash and financial future on the line.<\/p>\n

But what about the risks you can\u2019t predict?<\/p>\n

As investors are slowly discovering, climate change risks<\/a><\/u> can have a huge impact on the performance and profitability of your property investments, and they\u2019re only set to get worse.<\/p>\n

\"Mortgage<\/p>\n

The common risks on every investor\u2019s radar<\/span><\/h2>\n

Most seasoned investors are aware of the common risks that can impact their property portfolio.<\/p>\n

Peaks and troughs in the Australian economy and geopolitical issues can affect all kinds of investments, the property included.<\/p>\n

<\/div>\n

Within the economy, the property market itself is full of risks.<\/p>\n

Prices fluctuate, and local supply and demand move through unpredictable cycles.<\/p>\n

Then, there\u2019s the risk of vacancy.<\/p>\n

Having your investment property sitting empty, while you\u2019re still paying out for the mortgage, council rates, and real estate fees is every investor\u2019s nightmare.<\/p>\n

And of course, there\u2019s the ever-pressing risk that the RBA will raise interest rates from their current historic lows or the risk (recently realised) that APRA will change the rules<\/a><\/u> when it comes to getting access to finance.<\/p>\n

These risks are already on most investors\u2019 radars.<\/p>\n

But this list is certainly not exhaustive.<\/p>\n

Climate change: a genuine threat to property investors<\/span><\/h2>\n

There\u2019s no solid scientific consensus that climate change is happening, and along with it, extreme weather events are likely to become more frequent.<\/p>\n

Most of us know and understand this, which is why we\u2019re diligent with our recycling and composting.<\/p>\n

But what we don\u2019t tend to think about is how the climate crisis could affect our investments.<\/p>\n

For instance: climate risk could make many properties uninsurable in the future, or the insurance premiums could be so expensive that they drain cash flow.<\/p>\n

It\u2019s actually already happening for many investors.<\/p>\n

Many parts of Australia are prone to bushfires, and this risk is predicted to intensify as the planet warms up.<\/p>\n

In certain parts of the country, such as Far North Queensland, cyclones pose a huge risk, making properties very difficult and expensive to insure.<\/p>\n

Low-lying areas can be flood risks, particularly certain areas of Brisbane and its surroundings.<\/p>\n

And what about those waterfront properties in NSW, where the ground is literally disappearing beneath homes?<\/p>\n

What insurance company in their right mind would underwrite those?<\/p>\n

\"Warming<\/p>\n

What does the future hold?<\/span><\/h2>\n

Perhaps the most concerning climate risks of all are the ones nobody saw coming.<\/p>\n

Your investment property might be safe and insurable now\u2026 but what if it becomes uninsurable in the future?<\/p>\n

Or, maybe you\u2019ll still be able to insure your rental property<\/a><\/u>, but the panel of providers will shrink dramatically, and the cost will go through the roof?<\/p>\n

Analysis firm Climate Risk predicts that the number of properties in Australia that are uninsurable, or unaffordable to insure, will reach almost 450,000 within the next 30 years.<\/p>\n

By 2100, that figure is expected to be more than 700,000.<\/p>\n

Another point to consider is that if your property ends up in an insurance red zone, you may struggle to attract tenants<\/a><\/u>.<\/p>\n

Big business will probably move away from the area due to the risk, limiting employment opportunities for your tenants.<\/p>\n

And renters, like landlords, follow the news.<\/p>\n

Why would they want to live in a property when there\u2019s a very real chance their belongings, and even their lives, could be at stake?<\/p>\n

An uninsurable property is also likely to be an unsellable property.<\/p>\n

Investors could face the prospect of selling their portfolio off at a huge loss, and walking away with nothing much to show for it.<\/p>\n

Nobody will want to buy your flood or fire-prone home, and even if they did, there\u2019s a good chance they wouldn\u2019t be able to secure the finance to do so.<\/p>\n

What could this mean for the wider property market?<\/span><\/h2>\n

All of these climate change risks could have a flow-on effect on property prices, with the RBA warning dwelling values in 254 high-risk suburbs could fall as a result of climate change.<\/p>\n

They suggest that Brisbane and the Gold Coast could feel the effects as early as 2050, while large areas of metropolitan Melbourne, Sydney, and Perth may also be affected.<\/p>\n

I don\u2019t share all of this to be a \u2018negative nelly\u2019 or to scare you about the potential risks of being a property owner.<\/p>\n

In fact, it\u2019s the opposite.<\/p>\n

I was trying to make you aware of a potential problem that you may not have even thought of so you can make better-informed investment decisions.<\/p>\n

Some suburbs are likely to become riskier as time goes on.<\/p>\n

Others are located in relatively \u2018safe\u2019 zones, which aren\u2019t as likely to be impacted by climate change.<\/p>\n

While I\u2019ve always said the location will do around 80% of the heavy lifting of your investment property's capital growth performance, clearly having a property in the wrong location will damage its long-term growth potential.<\/p>\n