What happens if your property is on the wrong end of a risk report?

AS the risk of flooding in many parts of Australia increases due to climate change, the threat to millions of properties from potentially devastating inundation is also on the rise.

The situation in some parts of the country, such in the local government area of Sutherland in Sydney’s south, has become so high-risk that thousands of homes could be deemed flood prone under an official consultation process currently underway with the community. Sutherland Shire Council did not respond to Australian Conveyancer request for comment on the consultation, which must still be endorsed by the NSW government to take effect.

While such local government action is currently largely confined to NSW, there is potential for similar processes in other states as extreme weather events intensify in years ahead.

Against this backdrop, conveyancers, as well as other property professionals, must consider how climate risks, like floods, could impacts their daily practice, according to experts.

“Everyone who’s working in this space needs to continually update themselves to stay abreast of the data that’s being made available so there’s both public and private sources of data that are continually being published and I think it’s a case of people working in this space making themselves familiar with that,” says actuary Emma Vitz, a specialist in pricing and natural perils and climate risk modelling, at Finity Consulting.

Amid the growing threat from what the firm calls “climate-related perils” like floods, Vitz identifies an urgent need for sector professionals to appreciate that the “frequency and severity of flooding can be impacted by climate change and it’s certainly quite a significant issue that we need to deal with across the country”. 

“A lot of our cities are built on rivers, there was a reason for that but now it’s a bit of a problem,” she says.

McKinsey & Co, the international consulting firm, makes a similar point on a global scale. In a recent report, the US-based consultancy urges real-estate players to build capability to “understand climate-related impacts on asset performance and values”.

“Real-estate owners and investors will need to improve their climate intelligence to understand the potential impact of revenue, operating costs, capital costs, and capitalization rate on assets,” it argues.

“This includes developing the analytical capabilities to consistently assess both physical and transition risks. Analyses should encompass both direct effects on assets and indirect effects on the markets, systems, and societies with which assets interact.”

Back in Australia, Groundsure, the global environmental and climate data company, is one company trying to fill the gap on climate risks in transactions. It recently launched a “ClimateIndex Report” – a desktop report on current and future climate risks  – that it says is specifically for use by NSW conveyancers and property lawyers for property due diligence.

However, while consultants can model future risk – and are also at the centre of devising controversial criteria used to deem properties as flood prone – they have their limits.

As Finity’s Vitz puts it: “The models do have limitations and there’s a lot of uncertainty in predicting future risk as well”.

Even so, she says that doesn’t detract from the need for a paradigm shift on climate risk.

“Building codes tend to be concerned with the present-day conditions and they’re often more focused on preserving life that they are focused on resilience to the elements and that is obviously a problem when the climate is changing quite quickly,” she explains.

“We really need to be thinking about, when we’re building something today, what is that going to look like in 75 or 100 years and are we building for that to be resilient up to that point in time.

“There are a lot of different parties that need to come to the table and make some pretty tricky decisions around some of this stuff.”