NB: Grab a large coffee and a big slice of calorific cake before reading…
Residential Risk is a consideration that has, at times, been studiously avoided by those who have formed an emotional connection with a house they are looking to buy.
Location, location, location has been the mantra for decades when it comes to buying a house. It is, notably, a mantra put forth by Real Estate Agents whom profit from a house sale going through.
Low interest rates and an unhealthy appetite to invest in residential property (because of it’s lack of taxation) has caused an ongoing race to buy more and more expensively priced homes. Sanity seems to have exited the market place. Additionally, as our population grows, outpacing housing supply, home values have sky rocketed, making New Zealand one of the most expensive countries in the world to own a home.
With many of us now mortgaged to beyond the eyeballs, it is time to reckon with what we have found ourselves owning - is it the huge asset you were led to believe? Or is it or will it become a millstone around your neck when disaster strikes?
With a large majority of home purchases falling under the buyer beware code (there is one type of home that is the exception – I’ll tell you about it later), it is hugely important that buyers exercise more caution than they have in previous times gone by. In the last decade, New Zealand has been trounced by multiple storm events, earthquakes, floods, landslides and fires.
The most significant thing to have taken place this century in the realm of housing is the introduction of Sum Insured policies for homes. This is a response to the number of disasters New Zealand has dealt with in recent times. A first indication of the displeasure the world of Reinsurers has about the ongoing costs of reinstating damaged homes in New Zealand.
I am quite confident that not a single owner of a home recently destroyed or significantly damaged or disadvantaged by the summer of storms we have had, considered their home would ever be in danger when they bought their property. It was simply not considered.
Instead it was whether the view was good enough, nearby amenities met requirements and potential future worth was acceptable. As long as you could secure house insurance then paying the mortgage for the next 25 years was all you had to worry about. Wasn’t it?
Not anymore. Reinsurers around the world are getting twitchy about offering such broad cover policies to New Zealand insurance companies for homes. Too often, New Zealand is coming to their attention for all the wrong reasons. Until 2010, New Zealand was consistently under the radar when it came to risk profiling. But the repeated earthquakes since, ravaging storms and almost monthly flooding episodes has raised many an eyebrow and likely caused the development of a nervous tic whenever New Zealand’s risk profile is mentioned in boardrooms around the world of insurance.
But it is at the very personal level that natural disasters affect home owners that is heart-breaking. The years of memories, family photos and collectibles that get destroyed. Clothes left fit only for the dump. Lovingly tended gardens poisoned by inundation of sea water metres high. Raw sewerage flowing over your bed and carpets… time and time again we see the evidence on the news and in the papers. Hand wringing by public agencies and commiserations and band aid support immediately after the damaging event soon fades to nightmares and ongoing despair for months or years.
Why do we continually expose ourselves to this unnecessary risk? Because we know no better and have never been taught about risk identification or mitigation when it comes to investing in our biggest asset – by money borrowed from banks and financial institutes on contracts that benefit the lender.
We have all heard about the risks of smoking, drink driving and gambling, but what about our biggest gamble? Buying a house? Do we even see it as a gamble? Probably not.
It’s now past time to weigh up the risks of that house you are looking to buy. Will it be your refuge? Your place of calm in any storm life can throw at you? Or does it have all the hallmarks of causing you years of stress and financial hardship? How would you know?
Well, I for one have had enough! After years of helping people pick up the pieces and seeing how long it takes and the deep emotional scars disasters leave behind on those I have worked with, I feel compelled to act.
Years of learning lessons the hardest way imaginable has given me a veritable deep well of knowledge. This is why I founded Residential Risk Analysis, to help buyers dodge bullets. Although my team and I are unable to help everyone, I can, at least, endeavour to put my knowledge down here so you can learn and grasp the power provided by knowledge gained.
As you can probably sense, I am passionate about this issue. With hand on heart, I wish you all the best with the purchase or your first or next house.