If your target property is located in the flood zone, make yourself aware on the possible restrictions for building, restrictions on borrowing, the cost of insurance and the impact on property prices.
Bank Lending to properties in flood affected areas
The first thing you need to check is whether a bank will lend you money to buy the property as not all of them will. To get an initial indication, look through your planning certificate to find the flood zone details and the Annual Exceedance Probability (A.E.P).
The Annual Exceedance Probability (A.E.P) is the likelihood of a flood occurring and is classified as
1:100 – Also known as a 1% flood or a flood that occurs on average once every 100 years
1:50 – Also known as a 2% flood or a flood that occurs on average once every 50 years
1:20 – Also known as a 5% flood or a flood that occurs on average once every 20 years
Discuss the flood zone information with your bank or mortgage broker as each bank has a different lending policy. It gets more restrictive or even impossible to get finance the greater the chance of flooding. The banks will also require you to have flood insurance which costs more than a standard home insurance product. You will also find that not all insurance companies will insure your property, so you’ll need to shop around.
For the banks that will lend on flood affected properties, they will reduce the amount of they will lend to you. That means you have to tip in a larger cash deposit (or equity), say 30% rather than the standard 20%, to finance the purchase.
How Property Prices are affected by flood
Property prices are negatively affected by a major flood incident such as the 2011 Brisbane and SE QLD floods which cost the economy an estimated $6 billion.
I found a study produced in 2014 by the Queensland University of Technology to highlight the impact of the 2011 QLD floods on property prices.
As you will see in the table below, property prices in the Low and High Median price bracket are all immediately impacted. The Low property price bracket is lower by 22% in the 3 months after the flood while the High property price bracket is lower by 7%.
After 12 months, the property prices in most price brackets continue to be impacted by the flood. Unfortunately, not all properties were insured. This left owners in a difficult situation of having to find the money to rebuild or sell their property at a very depressed price (which impacted the median sale price of the area). The property was often bought by an investor who rebuilt the property.
Queensland University of Technology – Assessing the immediate and short-term impact of flooding on residential property participant behaviour (2014)
Bush fire prone land
Find out from the Council Section 149 Certificate or download a report from NSW Planning Portal to see whether your target property is in a fire zone.
A property in a fire zone may impact on the cost of building/renovation works, the material required for a new build or renovation works, the cost of insuring the property, possibly the design (setbacks, location of driveways, pools) of a new building, the structural design of a new building.
I used the NSW Planning Portal to give me a report on a property impacted by Council’s bush fire zone planning regulations. I pulled a random property for this example at 21 Kimberley Street, East Killara NSW.
As indicated, 21 Kimberley Street, East Killara is considered within the bush fire prone land zone.
There are two aspects of the Council zoning that are important here.
The first is that Council and the State Government provide guidelines on what you can and can’t build on your property. Like you can’t just build a block of units on your land if the zoning does not permit. Or your property might be in a Heritage listed zone which requires the property owner to meet very strict guidelines regarding any building works.
The second is whether or not the zoning for the surrounding properties are going to have any future impact on the area and your home.
Like for example. There are many NSW Councils that are having to meet an increased ‘density’ of housing set by the NSW State Government. In simple terms ‘density’ is increasing the number of people living in a certain area of land. In Council’s future planning, certain areas are zoned to encourage development in the form of high-rise buildings. If your target property is located near areas zoned for apartment blocks, it will be prudent to speak to Council directly about this issue. Otherwise, you can engage a local Town Planner.
Council will highlight certain areas within its boundaries as land subsistence area. An example of a land subsistence area is where a property is built over an old mine meaning the ground is structurally unsound.
Acid sulfate soils
Acid sulfate soils are natural sediments that contain iron sulfides. They are common along the NSW coast. When disturbed or exposed to air these soils can release acid, damaging built structures and harming or killing animals and plants
See the instructions below on how to find if your property is affected by acid sulfate soils.
Contaminated land search
Contaminated land is land that has previously been used for heavy industry (like lead smelter facilities), intense agricultural use, hydrocarbon storage (such as petrol, diesel) dry cleaning sites, petrol spills, buried asbestos,
See the instructions below on how to find if your property is on or near contaminated land.
Instructions on what to do for this task