The past January was one of the strangest I’ve experienced in many years. Firstly, everyone was in holiday mode as the year kicked off, and then the floods and cyclones sent us into survival mode as we braved what Mother Nature threw at us.
The result was that all activity around buying and selling houses, refinancing and other business slowed to a standstill. The massive clean-up began in earnest as Queenslanders stood tall to support each other.
Brisbane has returned to some normality but as I ride my bike round the suburbs there are plenty of streets showing the sheer devastation of the floods (in Indooroopilly a 10000 litre water tank still lies five metres up a tree, plus there are pontoons lined along the river bank).
On a business front, some sales have stalled with buyers pulling out of deals as the now flood-affected property is not what they ‘signed up for’, and banks withdraw from finance due to an uncertain security value.
The main issue is the valuation of flood affected properties. The question of “what are they worth now ‘as is’ after the floods?” and “what will they be worth once returned to their former glory?” Now that we know the Wivenhoe Dam cannot totally hold back all flood waters, would you spend $2 million for a river front property or buy elsewhere?
The other effect is that those who did not have insurance to cover the cost to re-build are left sourcing extra funds from their bank but as property valuations have dropped 10-15 per cent, getting the extra funds takes them over the 100 per cent LVR (loan to value ratio) and kills the deal. This has left many properties sitting ruined with no option but to sell at a major discount.
We have already scene properties in Jindalee sold at land value with the funds not enough to cover the loan. Given this, it will be very difficult borrowing over the 80 per cent mark for flood affected properties. Also interesting, is not all properties in a postcode or even suburb were affected but comparable sales will drag all properties down.
Because the property market in our area has dropped in value, investors and buyers with experience are chasing purchases at up to 10-15 per cent below the listed price. Some recent sales were $540k when the quoted price was $599k and even worse was a property that turned away an offer for $620k almost 3 months ago and is now being advertised at $570k – we are getting into a scenario with some properties where all offers will be considered.
Is the one in one hundred year flood now one in 30 or one in 10? Ask the hippies and it’s all about global warming and the chances of a similar flood in 10 years is now much higher. For the near future, the experience of January’s flood will weigh heavily in buyer’s minds.