Like the start of a whirlwind, the heavy downpour came; when it settled eight hours later last Sunday, virtually all properties in every part of Lagos was inundated with water, leaving luxury homes submerged and inhabitants counting losses. But today, with the list of ‘victims’ growing, incident exposing and ridiculing the under belly of the city’s drainage master plan, real estate experts are singing different tunes on the probable effects on rents and property values on the affected areas.
The occurrence of such heavy rainfall and subsequent flooding has not only raised the issue of climatic change and the effect on the environment but also the more local issues of the impact on residential property development, residential property values and the ability of residential property owners to gain both finance and insurance for their properties.
Although, there is no accurate data to back up the numbers of properties affected by flooding, The Guardian gathered that more than 40 per cent of properties in Lagos were affected. Studies say on short term, the disaster will negatively affect property prices and even rental returns in flood prone areas.
Specifically, some of the estate surveyors and valuers predict that Lagos property market, as a whole will not fall in value as a direct result of flooding. It is more likely the result of global and local economic factors that affected property prices simultaneously while others claim that the floods will affect the rental market. Many renters in low lying areas of the metropolis may choose to move to higher areas in months or years to come. For property investors who have experienced the flooding, this could effect rental returns and as a result lower the value of the property.
“Ordinarily, one will expect people to begin to move away from areas that usually experience flooding like the one witnessed in some parts of Lagos recently and this will lead to more vacant houses in such areas, thereby reducing rents in line with the law of demand and supply. But this can only happen where people have alternatives, according to International Real Estate Federation, Nigerian Chapter President, Kola Akomolede.
“For example, the areas worst hit by the flood were Ikoyi, Victoria Island and the Lekki axis. In the absence of any alternative highbrow residential area, where will the occupiers of these areas relocate to? They are therefore stuck to their fate. The net effect is therefore minimal on rents in these areas. Even on the mainland, the effects on rent cannot be noticeable because of the scarcity of accommodation. People do not have too many choices.
“Therefore, they are forced to hold on to what they have. Consequently, it may not lead to any decrease in rents, as it should be. However, capital values will be affected. Nobody wants to buy a house in an area that is prone to flooding. At the same time many will want to sell their houses and move on to areas less prone to flooding. This will increase the number of properties for sale in such areas and with less demand, the prices will be lower.”
In his submission, Mr. Sam Ukpong said: “Areas prone to flooding are rarely in demand thus command low values. The cost of building and maintenance in such areas are usually very high hence little or no return on investment. Building failures are rampant in such areas. Incident of tenant default in rent payment. There is usually a mass exodus of tenant resulting in long periods of void, neglect, decay and eventual blight.”
On insurance, Akomodede said that most insurance policies do not cover flooding. To cover flooding, one needs to add it with additional premium. “Therefore, now that the incidence of flooding has become more of a reality than fiction, more people are likely to be prepared to pay additional premium for their insurance policy to include flooding.”
Buttressing the point, Prince Ahmed Adeoju, a fellow of the Nigerian Institution of Estate Surveyors and Valuers (NIESV) stated that it would affect rental and property values, as many people will move to less flood prone areas. “In the long run, floating and shifting values will take place. As people relocate, the demand and supply will catalyse to increase in rents and values.”
Corroborating this view, Mr. Olusola Enitan, an NIESV official stated that flooded areas will suffer re-locationary tendencies, vacancies increases and home owners are saddled with increased letting periods and thereby suffer loss of income and the prospects of investment in such areas dwindle.
He said: “This is an indication of the increased anxiety and depression that plague those who live around flood prone areas. Ikoyi and Victoria Island have seen an increase in relocation to hotels on higher ground within the environment. Though the market is currently going through a lull, the recent flooding, which was unprecedented, had occasioned fall in rents and increased letting periods as more and more people think of relocating to safer grounds.
“Flooded areas are an economical drain on the citizens and government, they are environmentally glaring and people tend to move away from such areas, government efforts at flood controls are equally put under pressure by floods, premium payable on property insurance for the properties in the flood plain increase tremendously because of the high risk of insuring. Floods generally have a bad impact on all classes of property, even recreational and tourism property suffer loss in value and the yield rises while the rate of dumping increases.”
For Chudi Ubosi, a principal partner, Ubosi and Eleh and Company, “This is something that people will live with as long as we are in Lagos. The flood may influence decisions as to where people buy or rent properties. People will naturally go to safe areas. But values are unlikely to be affected. A lot more other factors will influence same.”
These reasons were also canvassed by Mr. Akin Olawore, “property values don’t react immediately, more so that rents are locked in for one and two years. For vacant properties in flooded areas, demand may disappear for now, but when the floods are over, the demand will return most likely at same rent.”
However, the increasing cost of rectifying the damage caused to residential properties from flooding has been of some concern to the residential property valuation profession and sales and leasing agency practices. However, the increasing trend in the frequency of flooding, combined with an increase in severity of flooding is now causing some degree of concern in the residential insurance and housing finance sectors.
Meanwhile, in order to determine and quantify the impact of flooding and flood damage on the residential property market, a survey of Chartered Surveyors and Chartered Real Estate Valuers was recently carried out across the main flood affected counties of England. This survey will provide similar details to the research completed by Eves (1999, 2001) and Fibbens (1993) in relation to residential property flooding in Australia.
This survey provides comprehensive responses in relation to the degree of flood affectation across counties, the effect of flooding on residential property values, the impact of flooding on building insurance premiums and possible difficulties in obtaining finance to purchase residential property in recognised flood areas.
The report highlights that there is a direct significant correlation between the severity of a flood and a reduction in residential property values. A severe flood provides a very visual short-term impact on the property buyer, seller, chartered surveyor, insurer and financier. The decline in residential property values is also linked to the availability of both residential property insurance and finance. In areas where insurance is difficult to obtain, the impact on residential values is more significant. It appears from the survey results that provided there is insurance available to rectify any possible flood damage purchasers are prepared to pa pay a similar price for residential property in flood prone areas compared to non-flood affected property in the same location.
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Source: The Guardian