The Aftermath of the KZN Floods and Looting on the Property Market

The Aftermath of the KZN Floods and Looting: the Silver Lining on the Property Market

The aftermath of the KwaZulu-Natal (KZN) floods and looting has been nothing short of devastating to its communities, the economy and the property market.

With the riots having begun on the 9^th of July 2021 and lasting well over a week, the damage and cost to the KZN economy was estimated to be R20 billion. Over 400 retail outlets, 1400 ATMs, 40 000 businesses and 50 000 traders suffered looting, vandalism and arson attacks. Close to R2 billion worth of stock was lost and 150 000 jobs were consequently at risk. Resultantly, a provincial state of disaster was declared.

The KZN floods commenced on the 11^th of April 2022 and continued until the 13^th of April 2022, ,10 months since the riots. Damage to infrastructure and the economy was estimated at R25 billion. Transport, electricity, water and communication were very limited during this period. Rail and road damage to the Durban port resulted in the accumulation of 9 000 containers at the Durban harbour. Once again, a provincial state of disaster was declared. All this as well as the hundreds of lives lost, is indicative of a great recovery plight that still lies ahead.

Below are some of the important points that can be observed related to the floods.

• The main development and investment corridors of KZN are located along the 17 river catchment areas in the North of Durban (6 of which experienced severe floods). A further 7 rivers in the South of Durban (Mlazi, Mbokodweni, Manzimtoti, Lovu, Mgababa, Mkhomazi & Mphambanyoni) within the eThekwini Municipality where flood damage was reported.
• Significant damage occurred along the rivers with the least Mean Annual Runoff (MAR).
• Ground stability, stormwater drainage, densification and poor building practice contributed to mudslides and damage to buildings.
• The backbone of KZN’s flagship industrial areas is under heightened threat. The South Industrial basin, Riverhorse, Umgeni & Riverside Industrial Parks are leading industrial areas but remain the most vulnerable to flooding.

When zoning into some of the specifics around the properties and the property markets within the 100-year flood plain — where the greatest risk was seen, we learn from the results of a survey done by the eThekwini Municipality that 55% of businesses within this area had no insurance. To put this into perspective, it is worth noting that there are 1 152 formal businesses in the area and 2 864 valuation roll properties.

Contrary to what the centenary name suggests, the global motif shows that flooding occurrences could be more frequent in the future. As such, valuers need to understand the extent to which some of these properties are exposed to flooding risks and factor that in when compiling their reports.

There is an estimated R7 billion worth of property that is at risk in eThekwini or the coastal region that was affected. The municipality relies on approximately R500 million worth of rates from these properties. Within the R7 billion, industrial property is the most dominant category at R3.7 billion followed by business and commercial at R2.2 billion.

Here are some of the key overall property take outs that can help us better understand the property landscape in KZN;

• The KZN Macro Economy has suffered about R37 billion haemorrhage of KZN’s economy in one year, but it also means that there is potentially a rebuild and economy-reactivation programme in excess of R50 billion. This is necessary to restore business confidence and tourism in KZN.
• The government’s focus has, rightfully, now been redirected towards the loss of life and social priorities as opposed to unlocking property opportunities. It is up to the private sector to bridge the gap.
• Insurance pay-outs have created a passage for the renewal of older less-functional properties into attractive modern buildings with better economic use and lifespan.
• It’s important to support businesses and restore confidence as this is key to sustaining rent-paying tenants. Job creation remains at the centre of social priorities, government must step up. The private sector thrives on the successes of other businesses, the private sector must step up.
• OPEX impact: Insurance (SASRIA & Flood) must be a key consideration going forward.
• Design considerations in the aftermath include security and flood risk. Therefore, building costs are likely to increase.
• Given the consistent demand vs (reduced) supply-side riot/flood impact to industrial property, one can expect the inherent scarcity to result in an increase in rentals, increase storage periods and a reduction in vacancies in properties that survived the triple dose of disasters.

In summation, the impact of the July riots, recent floods and perhaps the general socio-economic challenges that plague the country, have all had an immense impact on the KZN property market. There is a need to relook the assessment of risk and perhaps readjust our outlook on the frequency of the floods and the impact it will have on the value of property. Although the damage has been great, it is important to also realise the positive that comes with the rebuilding process that is set to revive the KZN economy, even amidst the anticipated challenges.

Reference: eThekwini Municipality