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Climate risks a key factor in real estate investment decisions

By Charlene Chin

/ EdgeProp Singapore |

October 6, 2020 2:07 PM SGT

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SINGAPORE (EDGEPROP) - Real estate investors are starting to place more importance on climate risks in investment decisions, highlights a report by the Urban Land Institute (ULI), a global multi-disciplinary real estate organisation, and Heitman, a global real estate investment management firm.

Investors now commonly view local climate risks - such as wildfires, intense storms and sea-level rise - as core factors in investment decision-making. In particular, some investors revealed that they were starting to pull back their investments in some property markets due to a lack of climate resilience, although the exact weighting of climate risks varies from investor to investor.

Climate-aware investors “are looking beyond the individual asset and assessing a city’s preparedness for climate change, but the models and metrics they need are still in their infancy. Benchmarking cities for climate risk and resilience is a challenge and I anticipate significant progress from the industry on obtaining this much-needed data,” comments ULI CEO Ed Walter.

In the report, the investors also raised the need for better data and frameworks to make market-level impact transparent and allow benchmarking between markets.

Some cities threatened by climate change are in the process of moving their populations, notably Cairo and Jakarta.

Climate migration is also an increasingly recognised phenomenon, with examples in the US that include migrations after disasters such as Hurricane Katrina, Hurricane Maria and the 2020 wildfires.

Climate change is increasing the frequency and intensity of many different weather events that result in catastrophic losses, including extreme precipitation, drought, floods, tsunamis, wildfires, heat waves and landslides, notes the report.

Globally, there were 40 disaster events in 2019 that resulted in at least US$1 billion ($1.36 billion) in near-term direct losses each – part of an upward trend of billion-dollar disasters. Worldwide losses from extreme weather events from 2010 to 2020 totalled over US$3 trillion.

More information on climate risks will also help city governments to create a more robust business case for major resilience measures, alongside more transparent accounting for the actual costs of catastrophic climate events, says the report. The economic benefits of resilient infrastructure projects include job creation and retention, preservation of the tax base and avoided losses, it adds.

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