Senior writer
Climate change is increasingly being acknowledged as posing serious risks to real estate. As flooding threats increase, like in KZN, the decline in popularity of real estate in impacted areas is likely to follow. It’s not just flooding, either. Rising temperatures and extreme weather conditions create droughts, such as what happened in the Western Cape some years ago and which remain vulnerable. A lack of rainfall in Gauteng also threatens dry taps.
Whilst much finger-pointing is directed at the lack of infrastructure maintenance, many property buyers and sellers become fearful when a climate-change-related incident occurs. Infrastructure can ultimately be fixed, but climate change requires a decades-long commitment, as Cape Town shows.
Cape Town leads climate change management
The WWF recently selected Cape Town as the national winner of its 2024 One Planet City Challenge (OPCC), which may increase interest in the property. This OPCC initiative award encourages global cities to set ambitious climate targets aligned with the Paris Agreement’s goal of limiting global warming to 1.5 degrees Celsius. This is the second time Cape Town has been named as a national winner, with other national finalists this year being the City of Tshwane and eThekwini Metropolitan Municipality.
Since joining the global initiative in 1994, Cape Town has been a global trailblazer for climate change. This year’s accolades commended the city for its “impactful actions, such as compact urbanisation and the electrification of the transport sector.” The jury felt that it had achieved a striking balance of better adaptation and mitigation efforts, which have been integrated with the UN’s Strategic Development Goals across all departments. Further, Cape Town’s actions during South Africa’s energy crisis were considered noteworthy “and a clear demonstration of the city’s commitment to transition toward a renewable energy system.”
This makes Cape Town’s property market very attractive, especially for those who want to live in a well-managed municipality, but more so to the increasing number of eco-conscious people championing a more sustainable lifestyle.
One factor that massively influences the desirability of a property is where it is sited. This includes the effectiveness of local infrastructure, including educational and medical facilities, transport routes, and commercial, manufacturing, and retail activities. When these are compromised by climate-change impacts, noting that real estate is tied to long investment cycles, it puts property-related returns in jeopardy.
It follows that home values will see dramatic shifts after a climate-change incident. That shift, in turn, creates a loss of rate income for municipalities, many of which are already struggling to survive. Then, how are they to address the challenges they face relative to climate change? Their priorities change; it’s a matter of survival.
The survival of residents also has to be addressed. They face (depending on the climate-related incident) a lack of crucial resources, which can manifest in a higher cost of living, worsening pollution, property damage and insurance claims, water evaporation, wildfires, rising sea levels that create storm surges, erosion, injury and death, seasonal changes, ecosystem failures … this list is, unfortunately, almost endless.
A survey by Redfin in the US found that 62% of home buyers are hesitant to move to an area because of its high risk of climate-related disasters and that 40% of buyers are motivated, at least partly, by climate risk in terms of their property decisions.
Those that do choose a property in a climate-risk environment are now having to consider eco-friendly designs and modifications that make their homes more resilient. Energy-efficient and water-recycling homes are increasingly becoming part of this agenda.
Become a local climate expert
A McKinsey report on climate change and real estate says that agents are moving climate change to the top of their agendas (as a result?) and that they have a critical role to play in the climate transition if we are to minimise the physical effects anticipated right up to at least 2050.
Globally, agents are now including climate change in their understanding of customer sentiment and how it impacts their property decisions. In some cases, agents are acquiring skills around understanding the structure of homes, from build to surrounding environment, weather patterns, and resilience to extreme, known and predictable weather-related occurrences.
Many use ‘climate intelligence’ indicators in their presentations. This is when data is analysed and integrated into information that leads to informed decision-making and improves outcomes around adaptation and resilience. They also use these indicators and predictions in their valuations, which can negatively or positively enhance their portfolio value. They also include a level of insurance understanding in their presentations.
Even the boutique and smaller agencies are jumping on board. From the elite property perspective, agents are expected to know about carbon exposure, environmental and external risks that threatened a property’s value in the years to come.
The smaller agency or single agent working in the mid-to low-income market does other things, like supporting biodiversity projects, volunteering in clean-up projects and awareness campaigns, and donating personal time and funds to ensure communities in trouble receive their support.
There is a turning point when all real estate stakeholders will need to improve their climate-change understanding of how this global concern will impact on lifestyles, property values, and investment into the sector, be that financial or emotional.
