Physical Risks and Property Values: Property-Specific Assessments Are Essential

(from crif.it webiste)

Italy is unfortunately being affected with increasing frequency by extreme natural disasters linked to climate change. A recent example is the landslides triggered by the passage of the Mediterranean cyclone Harry. The impact of these events extends far beyond the destruction of buildings and infrastructure: over time, they can generate shocks to property values, with consequences that are neither immediate nor uniform, as highlighted by economic literature.

A study by the Bank of Italy on the floods that struck Emilia-Romagna in 2023 shows that the initial impact primarily affects market liquidity. Property transactions decline, selling times increase, while asking prices do not show significant reductions in the short term. A second study, based on more than 550,000 real estate transactions in Italy, confirms that isolated extreme events do not necessarily lead to systematic devaluations. Rather, it is the “historical memory” of risk that has a lasting influence on buyers’ and investors’ decisions, with differentiated effects depending on income, age, and property type.

Analyses conducted by CRIF Real Estate Services on both aggregated and granular data confirm a complex picture. In many cases, there is no generalized decline in property values. Instead, what emerges is a selection effect within transactions. Immediately after an extreme event, properties perceived as safer tend to be traded more frequently, while damaged or more vulnerable assets are withdrawn from the market or become temporarily unsellable.

The conclusion emerging from studies across Italy is clear: physical risk does not generate a single measurable effect, but rather a variety of outcomes that differ from one building to another and from one location to another. There are situations involving a complete loss of value, cases of partial damage, and contexts where the main effect is reduced liquidity, even in the absence of immediately observable price depreciation.

The scale of the issue becomes even more evident when considering the territorial analyses developed by CRIF Synesgy Ratings and RED Risk. These studies, based on proprietary models integrating geomorphological data, historical information, and building characteristics, show that a significant share of Italy’s real estate stock is exposed to high levels of physical risk, which are expected to increase over medium- to long-term horizons. However, this exposure is far from homogeneous and varies substantially according to local territorial features and the specific characteristics of individual properties.

For this reason, alongside public mitigation and adaptation policies, the role of the financial and insurance sectors is becoming increasingly important. The ability to incorporate property-specific assessments that consider differentiated scenarios and actual exposure to physical risks represents a key step toward strengthening the country's overall resilience and directing investments toward the protection of Italy’s real estate assets. Making risk measurable, understandable, and accessible is a necessary condition for moving from an ex-post disaster management approach to a conscious strategy of prevention and adaptation.