The influence of flooding on the value of real estate
Kropp, Sebastian
The issue of climate change and its consequences is all over the media and has moved up the political agenda. Occurrence and severity of natural disasters increases. Originated by heavy rain or snowmelt and sea level rise but also by extending settlement, flooding is one of the most common natural disasters in the world. For Germany predictions say that events that have occurred on average every 50 years in the past will take place every 25 years in the future. Flood damages on property can multiply and economical losses should not be underrated. Price theory predicts that buyers will attempt to discount property prices for flood risk if they are aware of it. Home owners are not alone in their concerns about the value of their property. Valuation experts and mortgage lenders need to know about the value of property at risk to advise their clients and protect their investments. Literature research on national and international studies has shown that a flood event and flood risk in general influences the market value of real estate. But there exists a large spread when it comes to discount rates. In practice valuation experts use individual loadings or discounts based on their own experiences to consider the fact of flooding. Using specific numbers derived from comprehensive fundamental analysis would be a better alternative.
Event: FIG Working Week 2012 : Territory, environment, and cultural heritage
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