How flooding can affect real estate value

There is this saying that the best time to go looking for a house to rent or buy is during the rainy season. The reason is not far-fetched as flooding is one of the most common natural disasters in the world.

The risk of flooding has always been present for buildings close to rivers or coasts but it has been growing in recent years. Major flood disasters in the world over the past decade have shown that flooding is a significant environmental hazard.

Flood poses a risk to infrastructure, local economy, housing, living conditions and not to forget human lives. The substantial cost of damaging natural and built environment, of cleaning up and the following renovations run into billions.

The impact of flooding on the market value of real estate or the event of a flood can cause extreme devastation to real estate. The reduction in the real estate value might range from negligible to severe.

In general the common conditions on the property market should not be influenced by a local and time limited flood event.

However, before talking about the negative effects that have to be considered in the valuation process the positive effect of water front location must be looked at closely.

On the flip side, the value of a property with a direct access to a lake or a river should be high. Positive and negative effects of water front location do overlap. In-depth analysis very often fails due to the small number of purchases, especially in exclusive residential areas where transfer of ownership is rare.

Sea level rise, increase of storm and heavy rain that result in flooding and a general higher flood risk, this are the consequences of climate change we have to expect in the future. The impact of flooding should therefore be considered in the real estate valuation process.

No one knows when and in what extent the next flood event will occur or if precautions will be sufficient, however climate change means that natural disasters will be more common in the future and financial losses will increase.

Hence, valuation of endangered real estate has to consider the aspects of flooding and flood risk.