Mickael Roger of PropHero talks about why investors should also be thinking about climate risk.
The latest report of the United Nations Intergovernmental Panel on Climate Change shows how the incidence and intensity of extreme weather events are likely to accelerate alarmingly over the coming years. Much faster, in fact, than we had originally anticipated.
While implications for our health, lifestyle and livelihoods have been well documented, recent studies go further to expose the high risks to infrastructure, buildings and homes if climate change continues unchecked.
Most investors are accustomed to doing research on location, historical price growth and rental demand.
Should investors also be thinking about climate risk?
According to Mickael Roger, Co-Founder and Co-CEO of PropHero, the answer is Yes.
“As heatwaves, droughts, wildfires and floods become more frequent and extreme, real estate investors need to proactively take climate change threats into account when making decisions about purchasing a property,” he says.
“If you own real estate in vulnerable areas, you should be aware that the past is becoming an unreliable indicator of the future. Events that may have taken place every 100 years are now likely to happen every 10 years – and that changes everything,” he continues.
PropHero is a digital buyer’s agent and end-to-end investment platform that takes the stress out of investing in real estate. It has a data-driven approach and recommends properties to its clients using AI driven algorithms and predictive models.
“While some regions and suburbs are likely to become riskier, others within relatively safe zones are likely to withstand many of the worst effects of climate events and provide an opportunity for property investors,” says Mr Roger.
“Importantly, our team works with insurance and data providers to perform extensive mapping of areas most at risk from adverse weather events and we’ve made it a priority to include several climate-related variables in the mix of factors we apply to select the best properties,” he adds.
PropHero goes further by adding an additional buffer to guard clients not only from investments that could be at risk now, but also those that will be at risk in the next 10 or 20 years.
The proptech startup says that its data-led approach delivers confidence for investors looking for new investment properties.
For existing properties, however, insurance is an option but not necessarily an answer.
As extreme climate events hit certain regions with more frequency and force, the cost of insurance is already eye-wateringly high. The growing burden of claims for insurance companies could cause future premiums to soar to levels that totally outweigh the benefits of investment.
In reality, even if with insurance, there is time and hassle involved in rebuilding or renovating after an adverse event. An investment property may be uninhabitable in the short term and, for investors, that means a loss of rental yield.
“You might think it’s logical to look at insurance as an answer to the problem. However, when it comes to climate risk, the best insurance is to avoid the wrong properties,” says Mr Roger.