Does Flooding Impact Housing Prices and Demand?

by Akash Pharande, Managing Director - Pharande Spaces

Undoubtedly, urban flooding, especially in a country like India, which sees annual monsoons, can have serious economic consequences. These consequences are completely apart from the inconveniences and frayed tempers caused by pothole-raddled, awash streets. For example, excessive rains ruin crops – a serious matter in agriculture-driven nations where food prices are dictated by availability.

Flooding can destroy or severely damage assets like automobiles, public utilities, and electrical grids, lead to excessive air pollution due to crawling traffic, and cause other economic losses. And they can destroy homes in low-lying areas. When water levels rise too high, the can damage the structural integrity of properties in the fallout zone.  Rising water levels also cause structural damage to properties within the immediate flooding influence zone.

But does flooding also impact the price of housing in urban India? Let’s take a look.

Logic Vs Reality

There is certainly a negative correlation between flooding and residential real estate values at the most basic level. Flood-damaged homes will see much lower demand in the housing market – not only because the property is damaged but also because there is a clear threat of further damage in the future. Once built, housing projects or individual homes cannot be shifted to less flood-prone areas.

Much depends on the severity of the flooding in a particular area. In most Indian cities, occasionally submerged streets or compounds are accepted as facts of life. In many cases, the reason is merely negligence on the part of the local municipality to clear astron drains in time.

But if water levels regularly rise to the floor levels of surrounding housing projects, there is a bigger problem. The area is either naturally (geographically) prone to flooding or has been made prone to flooding by overbuilding and filling up natural water escape routes with concrete structures.

Central Areas Most Affected

Not surprisingly, such artificial blockages are usually created in the most central areas of our cities – for example, in South-central Mumbai or the core areas of Pune. Since they are the most expensive locations, they act as a magnet for real estate developers who often circumvent or completely flout local building laws, often with the help of governing agencies whose real responsibility is to prevent predatory development.

These areas are vanity pin codes and demand for housing does not appear to be severely affected by instances of flooding. Even less expensive areas of a city may not see demand reduce because of flooding, because the need for accommodation there is driven by nearby or connected workplace hubs.

In the case of the heavy floods in Chennai in 2015, real estate development barely paused before the fundamental need for homes in the city caused housing demand to resurge. Chennai again saw floods last year – but according to real estate consultants, the real estate market there still grew by over 60%.

In Bengaluru, several areas in and around the main IT hotspots were recently ravaged by flooding. However, this has not caused property prices or rentals to drop as people employed in the IT tech parks have little option but to live close to them.

In Pune, too, flooding has, in most cases, had no significant impact on housing prices. The flooding of Pune’s Mutha river has direct implications for several low-lying or overly-developed areas – including some of the most aspirational ones which regularly draw the richest Puneris.

The Mula river, which is also flood-prone during excessive monsoon spells, regularly overflows into other areas – including some high-profile locations which benefit from the Hinjawadi IT Park. Likewise, many locations in the Pimpri-Chinchwad area are threatened by flooding of the Pavana river, which passes through it. Nevertheless, housing demand continues strong in most of these areas.

Onus on Homebuyer Instincts
This may seem counter-intuitive, considering that most international studies on urban flooding find that flood risk invariably causes both rental and capital values to plummet. However, with few exceptions, Indian cities seem immune to this phenomenon.

Logically, property prices should be tied not only to the land rates in an area but also to how liveable it is. However, on the ground, housing prices will not reduce as long as there is sufficient demand in any given location – flood-prone or not. Housing prices in a location are inextricably tied to the prevailing demand for homes there. This is an immutable fact of the Indian housing market.

Homebuyers should do their homework about several aspects of a project and location, including proneness to floods. They should certainly not be influenced by the snob quotient of an address when it is known that the area gets flooded regularly. Good housing is about liveability.

It is generally advisable to avoid buying homes in smaller projects fitted into a minuscule plot in a densely populated area. Developers of such projects have only chosen the plot for one reason – to leverage the central location appeal and the higher property prices. Such projects do not benefit from adequate planning at the municipal or developer level.

The Integrated Township Advantage

Here again, integrated townships created according to a meticulous masterplan are perhaps the only safe bet. As a rule, integrated townships are developed on the city’s outskirts which are not prone to over-development. Moreover, a township’s approved design permanently locks in open spaces, adequate roads, water management, and retaining local flora and fauna.

What you buy today is what you will still have decades later, no matter what happens in the rest of the city.

Large townships cover huge areas which, if adequately planned and duly approved by the development authorities, present no danger of floods anywhere within the project’s massive perimeter. Moreover, large integrated townships in Pune and other major cities are privately run and therefore not subject to negligent municipal services.

When a developer builds a township, homes there are sold over a span of several years. Any instance of flooding due to deficient services will impact future sales. Thus, township developers are highly invested in ensuring that flooding or similar issues are never associated with the project.

These inherent qualities of integrated townships are the biggest assurance against the devastation of flooding, now or in the future.

Geographical Flaws Are Permanent

Remember that once an area is flooding-prone, nothing will ever reverse the situation. No amount of municipal intervention can salvage such an area. No amount of damage control will ever make a difference if the fault lies in the area’s geographical location. With climate change and unforeseen, severe weather events now a permanent reality across the globe, what is bad today will be much worse tomorrow. Witness the problems faced in Mumbai, where rich homeowners desperately cling to literally sinking areas and the municipality fights a fruitless annual battle against flooding.

In cities vulnerable to flooding, homebuying decisions should not be made merely on the basis of housing prices or snob appeal. Some of the most popular areas in our cities are prone to flooding. Homes must be bought with sufficient hindsight (what happened before), foresight (is it likely to happen again), and a firm understanding of what constitutes safety and a dependable lifestyle in a constantly changing environment.

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