The Victorian town of Horsham is now becoming inundated with water as floods in the state’s west become even more destructive, sending residents from 51 towns fleeing from their properties.
The damage in Victoria comes as the impact of the destruction in Queensland is now becoming known.
Ratings agencies Moody’s and Fitch Ratings both released reports yesterday outlining the impact the floods will have on mortgage borrowers in the state’s south-east, along with major ramifications for the banking sector.
The news comes as Queensland premier Anna Bligh has announced a royal commission into the floods, in order to determine if the warnings given to residents were sufficient. Prime minister Julia Gillard has also announced a business task force will be compiled to help rebuild parts of Queensland.
This morning the Victorian town of Horsham is experiencing its worst floods in over 100 years. Emergency services are predicting over 600 homes will be affected by the flooding, and power is expected to be cut today.
While the death toll from the Victoria floods has so far remained at zero, grave fears are held for an eight-year-old boy who was last seen swimming off the Goulburn River. Rescue workers believe the incident was an accident, but have nevertheless urged residents to stay away from floodwaters.
Victorian officials have imposed a fine on residents seen swimming or boating in flood-affected areas.
Another 50 towns throughout the west of the state have been impacted, with thousands of residents urged to evacuate.
“The reason we have taken this step of recommending people evacuate is because either houses will end up with water above floor level or because roads will become impassable,” emergency services spokesman Stewart Walls told Fairfax today. “We prefer people to be able to get out.”
“We have power cut off to the bottom end of the CBD of Horsham and we are planning for the water rising enough that it will cut the highway.”
More homes will see their power cut if the waters continue to rise. The town of Kerang is now expected to be isolated for at least three days, with residents in Quambatook also being evacuated.
Premier Ted Baillieu has requested assistance from the Federal Government, saying on 3AW that the flooding could cost the agricultural sector hundreds of millions of dollars.
“This is going to have a very significant impact on our economy, our country communities, obviously on morale in those communities that have been hit a second or third time in the last few months,” he said.
In Queensland, the economic devastation of the floods is now becoming known. Shortly after Deutsche Bank released its report suggesting inflation will be boosted by the floods, ratings agencies Fitch and Moody’s have released predictions the Queensland property market will be impacted.
Fitch said in a statement the south-east of Queensland will see mortgage borrowers negatively impacted, given that property damage may temporarily or permanently affected borrowers’ ability to pay, and “may result in lower than normal recovery rates for damaged properties”.
Fitch also points out that mortgage borrowers may experience an “affordability shock” due to an increase in expenses.
While associate director of Fitch’s structured finance team James Zanesi says it’s still too early to know how many properties are affected, the company understands that as many as 40,000 may be hit .
“It is too early to quantify the magnitude of the eventual affordability shock. Major banks have already announced payment holidays of up to three months in favour of affected households and increased credit availability or disaster relief packages.”
“Special government disaster flood assistance grants and private help might offset the impact on such borrowers. Structural assistance grants and private insurance might also reduce the costs of property damage and further government help may be forthcoming, given the magnitude of the catastrophe.”
Zanesi also points out that entrepreneurs and self-employed borrowers are more susceptible to a temporary reduction of income.
Moody’s has said in a separate report that mortgage delinquencies could rise, delivering a shock to the four major banks which could make them more vulnerable to credit downgrades.
The company said in its own report the Bank of Queensland, Suncorp, Heritage Building Society and the Rock Building Society are the companies with the most exposure to the now volatile property market in south-east Queensland.
Analyst Daniel Yu says in a report that “delinquencies will rise and this will have negative credit implications to all banks with an exposure to Queensland. As borrowers are only starting to assess their situations, we would not expect many applications to have been made. However, over the next few weeks this will be a key indicator in determining the potential rise in borrowers that are in stress.”
Both Moody’s and Fitch point out many of these homes will be underinsured, due to a lack of flood damage coverage offered by insurers.
HSBC also expects the floods to take away 0.8% from GDP in the December 2010 quarter, with Deutsche Bank also predicting a 0.5% hit in the first quarter of 2011.
Real Estate Institute of Queensland managing director Dan Molloy told Fairfax today mortgage borrowers could see prices begin to fall, or in the worst case scenario, find themselves with properties that are unable to be sold.
“In the short period it probably scares me a little; what the flood will do to house prices,” he said. “In some cases, houses will be unsellable.”
Meanwhile, Julia Gillard has formed a business task-force dedicated to rebuilding business and infrastructure in Queensland.
Treasurer Wayne Swan is set to chair the group, with assistant treasurer Bill Shorten, Lindsay Fox and Queensland treasurer Andrew Fraser also named as members. Woolworths chief executive Michael Luscombe, Leighton Holdings chief David Stewart and AIG chief executive Heather Ridout will also join the group.
“The purpose of bringing leading corporate identities together … is to further leverage corporate support for the recovery and rebuilding in Queensland,” Gillard said today.
“Already, corporate Australia has been tremendously generous…But given the scale of this disaster, we need to do more.”
The task force will be formed for an initial period of three months.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
