For everything we take from our planet, it has a way of taking back – in a big way. We were reminded of how terrifying it can be when, at the end of 2019, bush fires burned out of control across the country, ravaging forests, wildlife, families and homes along the way.
Indeed, many real estate investors will have felt the weight of the bush shot. Some will have seen their investments destroyed or damaged, and others will continue to watch the value of their homes fall as formerly prosperous communities are now faced with the need to rebuild.
"One of the big impacts of the bush fire crisis will be on reconstruction costs and therefore the adequacy of the sum insured on the policy of an investor", explains Brendan Goddard, Managing Director of Macey Insurance Brokers.
“Building codes for areas subject to bush fires are already fairly robust. However, it is more likely that these codes could be extended to what was traditionally areas of low fire risk, the most average suburb. »
As a result, building in suburbs "that was traditionally not classified as high risk of bush fire will now cost more to meet building standards," says Goddard.
Areas which are now considered to be areas affected by bush fires will also see insurance premiums reach new heights.
"This means that the cost of investment in these areas will increase, as will the cost of insurance, and therefore the rental costs will have to increase to ensure that the investor always gets the return he's looking for, "says Goddard.
"We have been seeing rate increases in the property insurance industry for about two years now. The main driver of this situation is the losses due to weather events suffered by insurers locally and abroad.
"It didn't start or stop with the bush fires. After going through a blaze of flames, January 2020 led to a new wave of disasters, with massive hailstorms hitting Canberra, Melbourne and Other parts of south-eastern Australia. South-eastern Queensland struggled with heavy rain and sudden floods, while dust storms obscured parts of New South Wales. .
"Before buying, you should check with the local council on your search list – they can provide information on certain risks for each property"
"In recent months, we have experienced the full force of what Mother Nature can do, from catastrophic bushfires to hail and floods. These natural weather events are becoming more frequent and more powerful due to global warming, ”says Goddard.
In light of these events, it is imperative that property investors take intelligent and practical measures to guarantee the sustainability of their investments.
Different risks to consider
Some common damage that elements can inflict on a property includes broken windows, exposed roofs, overhanging gutters and pipes, surges and flames.
Outdoor spaces such as gardens and courtyards are also subject to destruction, and the necessary repairs and replacements can be astronomically expensive.
In early January, the Insurance Council of Australia reported that claims resulting from the bushfire situation were estimated at more than $ 700 million. Almost 2,000 homes were destroyed and nearly 9,000 insurance applications were filed.
Depending on where you own the weather, risks can differ, with general disasters ranging from bush fires to floods and droughts. For those investing in northern Australia, cyclones can also be a major problem.
"These are common weather events which you should take into account when purchasing an investment property. They can cause damage not only to property but also to the community, leading to unemployment and declining populations, "said Wayne Jessup, founder of The Property Bloke.
"For example, properties located in areas affected by the recent bush fires could decrease in value in the short term until the community is rebuilt.
It would certainly be a blow to long and short term investors, because all the owners are in this game in order to make a profit. For those who are already on the market and own property in the affected areas, your options are to sell (potentially lose money) and reduce your losses, or overcome the downturn related to weather conditions up to # 39. ; that conditions improve.
If you are unsure of what to do, seeking advice from an experienced and accredited advisor can help you determine how well the property fits your long-term goals.
An appropriate shield
Adverse weather conditions highlight why it is essential to get specific advice on how to properly insure your investment properties.
"Most homeowners' insurance policies will cover just about all natural weather events, but it is important that you check the details of the policy to make sure there is no such thing. has no hidden exclusions, "says Goddard.
"Flood cover is sometimes excluded and may need to be added at an additional cost."
"Most homeowners' insurance policies will cover just about all natural weather events, but it is important to check the details of the policy"
Goddard advises having an insurance professional by your side to help you review the terms and conditions of any policy you are looking at. It also warns investors against attempts to lower insurance costs.
"The biggest mistake we see is with homeowners looking to save money on their insurance premiums by not insuring the true replacement value of their property. Underinsurance is a major problem, ”says Goddard.
"You get what you pay for, so the cheaper the premium, the more restrictive the coverage can be." Keep in mind that values ??should include debris removal costs, professional fees, inflation costs and consideration of the building materials used. »
Another valuable, but often overlooked cover is the loss of rental income, which prevents an investor from losing rental income if the property is made uninhabitable and allows him to continue to pay expenses like his mortgage.
Although damage to property may be inevitable in the event of weather disasters, and there is no risk-free investment, there are ways to try to minimize any negative outcome .
"Before buying, you should check with the local council on your search list – they can provide information on certain risks for each property," advises Jessup.
"You don't want to buy a property and then find after signing your contracts that you can't be insured against fire and flood – and worse, that you won't be able to insure the property at all." »
Planning is the key, adds Goddard. "Be ready early and leave nothing until the last minute. Keep the building well maintained and have an appropriate fire plan if necessary."
