In light of repeatedly occurring water-related disasters and the damage they cause to homes, beginning from August 28th of last year, the relevant real estate law was amended to make it mandatory that information concerning water-related disasters, together with a flood hazard map for the area where the subject home is located, be included in the Disclosure Statement that is provided to buyers before they sign the Purchase and Sale Agreement. There are, however, other disaster risks that also threaten homes. They are earthquake risk, landslide risk, and volcanic eruption risk, to name a few. One has to wonder whether home value estimates now actually reflect these disaster risks?
When you think about it, even for homes within the same locale, if you consider the risk premium between one in a high-disaster risk area and another in a low-disaster risk area, I believe it is reasonable to expect a price differential. In actuality, however, if two homes are basically the same in terms of zoning, land size, distance from the train station, and year of construction, the home’s value would be similar. To put it simply, the formula is essentially “square meters X price per square meter”. Information about water-related risk like propensity for flooding, about landslide risk like slope integrity, and about earthquake risk such as soil stability, are, unfortunately, not factored in.
Therefore, although the level of awareness that climate change and natural disasters are having an effect on real estate values among real estate professionals is still relatively low at this time, it could be reasonably expected that consumers will start asking for realistic home value estimates that reflect these risks now that they are increasing in both frequency and ferocity. I am not sure whether the valuation method will put a higher price on those homes with lower risk or assign a lower price to those homes with higher risk, but, regardless, it should not be too difficult in this day and age of AI.
Nevertheless, I feel that, if we consider the future likelihood of litigation (as happens in the U.S.), the day may not be too far when real estate brokers, especially those representing buyers, become legally obliged to make sure transactions are concluded based on home values that properly reflect disaster risks of all types.