Climate Change And Real Estate: What We Know And What We Can Do

PropertyGuru Editorial Team
Climate Change And Real Estate: What We Know And What We Can Do
Written by Elaine Goh Yi Yin and Fatimah Zahirah Mohd Husni from Roots & Shoots Malaysia
The effects of climate change today have left the world with some major disastrous events, like the Australian bushfires, Californian wildfires, and China floods – all in the year 2020 alone.
Located close to the Equatorial line, Malaysia is a tropical country that has been abundantly blessed, because we do not have to experience such devastating environmental events.
  • Temperatures in Peninsular Malaysia will increase by 3.6°C
  • Rainfall will be more inconsistent
  • River discharge in some river basins will increase as much as 43% during the Northeast Monsoon season by the end of this century
Climate change has left serious impacts towards our agriculture, forestry, fisheries, and tourism sectors due to various reasons.
It comes as no surprise that climate change has affected these economic sectors but did you know that the real estate sector, being one of the main contributors to the phenomena itself, is receiving the short end of the stick as well?
As Malaysia continues to get warmer and average temperatures slowly (but surely!) increase with each passing year, problems caused by climate change are starting to slowly unfold within the real estate sector.
Extreme weather events like floods, droughts, and rising sea levels may cause a decrease in prices in high-risk areas, as people would be aware of the devastating impacts of such events.
People are less likely to buy in properties at high-risk areas, considering it’s a known fact that adequate preventive measures are still widely insufficient and ineffective in Malaysia.

How Exactly Is Climate Change Affecting The Real Estate Sector?

1) Rising temperatures

Malaysia experiences warm temperatures year-round, averaging between 21°C to 32°C daily, making this issue the most common one yet.
Studies have shown that temperature and humidity have an effect on paint, which means that the paintwork and exterior finishes of properties may need more frequent maintenance.
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Additionally, we are no strangers to the hot weather, and when it becomes unbearable, we turn to our trusty air-conditioners (ACs) to cool us down, increasing a building’s operational cost.
As more and more people use their ACs in residential areas, the demand for power will surge – oftentimes leading to power failures.
Besides electrical demand, the demand for water may also increase due to increased frequency of showers, and this will subsequently affect water price and property operational costs.

2) Change in rainfall patterns and flood

Climate models have long since predicted increasing rainfall in the coastal regions of Peninsular Malaysia, leading to the possibility of more floods.
States like Kelantan (record-breaking flood in 2014, pictured below), Kedah, Pahang, Terengganu and Selangor have made newspaper headlines countless times due to flooding events.
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From the real estate sector’s perspective, they will be affected if flood-proofing measures are not incorporated in the construction and planning.
Numerous studies have proven that the occurrence of flooding can reduce a property’s value when compared to a similar property that doesn’t face the threat of flooding.
Similar trends were reported in Shah Alam (notably in 2006), where the frequent floodings had impacted property prices by 10 to 30%.
Aside from affecting property values, intense rainfall and the possible submergence in water may also have direct impacts on the property itself.
The integrity of the building surface is affected when flooding poses a risk to water penetration through exterior walls.
Generally, any deterioration towards the building’s infrastructure due to rain and flooding may increase the capital and maintenance cost of the property.
In relation to rising temperatures, these two issues can alter humidity and moisture levels, causing issues like fungal stains, peeling paint, erosion of mortar joints, and defective plaster.

3) Rising sea levels

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Coastal regions in Malaysia are extremely vulnerable to this issue as most parts are considered low-lying areas, with an elevation of less than 0.5m above the highest tide.
In fact, according to Malaysian-based research firm Centre for Governance and Political Studies (Cent-GPS), 9 major states will see parts of land underwater by 2050, due to rising sea levels!
The rise in sea levels may also cause the reduction in fresh water availability, due to the intrusion of saline water and increase in soil salinity (read: the amount of salt in the soil).
The salts that have dissolved in the water supplies can then move into building materials, which causes damage to houses, buildings, and other structures in coastal regions.
How this happens is through the deterioration of brick, mortar, and concrete, as the saline water can crystallise in all parts of the building.
Further damage might be seen in the corrosion of metal in structural concrete buried in the ground, and worst of all, shifting or sinking of foundations that may lead to structural cracking, damage or collapse.

4) Limits of insurance

Climate change-induced events have caused homeowners in high-risk areas to pay more for their property insurance.
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For example, high-impact floods in Malaysia have become an annual experience, yet flood insurance has remained a grossly neglected part of comprehensive flood risk management.
This explains that there is still a lack of localised assessments that are important to help understand the needs of vulnerable communities, and identify how they can be best prepared in the event of a shock like a natural disaster.
Climate risk is likely to stress local economies, and more grimly, causing market failures that affect both consumers and insurers.
Moreover, revisions to policies that are based only on historical data may not reflect the full cost of climate risk, as they are unlikely to accurately project risk, because the climate now behaves differently.
This may end up hiding the true extent of the risk for both the insurers and the insured. As a result, the two parties’ interests are consistently not in alignment.

The Question Now Is, ‘How Do We Move Forward After Knowing All Of This?’

First off, there should be the creation of industry-wide norms that contemplate and quantify climate risks when it comes to decision-making and valuations.
A unified, industry-wide response and agreed-upon system can help us prepare for this growing crisis that is happening to the real estate sector in Malaysia due to climate change.
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As individuals, the actions we can take when choosing a property may just make the biggest difference. Here are some things to consider when doing so:
  1. Investigating and understanding the environmental factors that could arise in the chosen location in the future.
  2. Investing in sustainable housing which positively affects the climate, as it provides better air quality, is more energy-efficient, and conserves valuable resources, whilst saving money.
  3. Investing in energy-efficient technology such as solar panels, and rainwater harvesting systems.
  4. Considering properties that were built using sustainable timber and low carbon cement in place of high-emission materials.
  5. Looking into properties that have been specifically designed to benefit the environment around it.
On the other hand, what can real estate developers do in this fragile battle against climate change that will benefit all parties? Here are some suggestions:
  1. Developing a management system that fully incorporates climate risk in its decision-making processes, identifying approaches to better assess the existing issues, and the mitigation strategies to overcome said issues.
  2. Adopting industry best practices to improve energy efficiency across its operations – from the development of green buildings, to energy and carbon management of its buildings.
  3. Investing in energy efficient solutions.
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To ensure nationwide success of the possible adaptations towards climate change in the real estate sector, the actions taken by our government is of utmost importance. The government can and should contemplate the following suggestions:
  1. Expanding the market for climate resilient products and services.
  2. Organising more awareness campaigns regarding climate change across the nation.
  3. Spreading awareness about climate change through mass media.
  4. Thorough investigation of plausible environmental consequences of a chosen location, before carrying out rapid urbanisation.
In short, climate change is a humanitarian disaster that will continue to grow in the years to come, as it continues to fuel more conflict and turn more areas uninhabitable.
Collectively, it is crucial that we take the necessary steps to prevent further loss and damage.
Therefore, the next time you consider buying a home or investing in a residential property, consider the potential risks of climate change hazards, and ask yourselves this question: "What environmental factors could I be facing in this home in the next 10 to 20 years?"
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