Everyone is aware of the negative impact that hurricanes have a negative effect on real estate. In a recent research, it has been found that this impact lasts much monger than previously believed. This research gives rise to many concerns that are important for not just investors and property owners but also for mutual funds and hedge funds that invest heavily in real estate industry. Some of the biggest issues arising out of this study relate to rental yields, property valuations, and the increasing premiums of property insurance.
Compounding losses of insurance companies because of huge amounts of compensations given to homeowners on account of damages caused by hurricanes have played an important role in the impact of natural disasters on real estate industry. Damage repairs caused by hurricanes not only involve lots of money but also take a long time for clearing up. It has been seen that homeowners had to wait for a long time to receive compensation from their insurance companies. This resulted in delayed repairs of the structure, and in some cases, owners simply abandoned their destroyed homes.
It is a fact that values of properties take a beating soon after a natural disaster has taken place. This is the reason why it is the endeavor of the governments as well as insurance companies to focus upon faster rebuilding of properties. It helps in halting the downward slide of property prices in a housing market hit by a hurricane. Recovery after a hurricane is never easy but the recent examples of Puerto Rico and Houston are there for everyone to see how focusing on rebuilding helps in fast recovery of flattened property prices. While Houston real estate market staged a splendid recovery after being hit by Hurricane Harvey, Puerto Rico housing market languished for a long time after the hurricane.
There are many factors at play in deciding the impact of a hurricane on the real estate market in a area. Severity of the hurricane, the infrastructure already in place, and the response given by the government and the insurance companies play an important role in the recovery of the housing market. Money plays an important role in facilitating rehabilitation efforts. This was clear in the way Houston recovered quickly after Hurricane Harvey.
The point to keep in mind is that even in places where recovery after a hurricane is relatively quick and smooth, prices of properties, both residential as well as commercial, take a sudden dip and take nearly 2 years to recover. One reason behind this drop in prices is higher vacancy rates caused by the destruction of properties. Another reason is of course huge amount of money needed for repairs that decreases the return on investment for big players in the industry. Some of the expenses can be recovered in the form of tax benefits later but most investors feel a crunch of cash after a natural disaster.
Property owners are the worst affected because of hurricanes. Many experts say that some of the investors will eventually decide against investing their money in hurricane prone areas. It has already started to happen because of increased insurance premiums charged by insurance companies in housing markets that become flooded after being hit by a storm or hurricane. These companies have also begun to ask property buyers to get necessary upgrades before they can buy home insurance. For millionaires, paying a little bit extra for a property may not be a big issue. But for most buyers coming from the middle class, higher property prices can upset their calculations.
If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty.
As a top producing Realtor and Property Manager; Terry specializes in sales, extensive construction homes, rentals, REO’s, short sales, and all aspects of Real Estate. After graduating the University of Michigan with a master in MBA, Terry continued his endeavor and now has over 15+ years of experience in the Real Estate world. If there is anything that has to do with Real Estate and sales, you can always be sure of Terry to provide important, specialized knowledge.
