In flood-prone areas, many houses are affordable, and climate change is exacerbating social inequality.

In the flood-prone areas of the Klang Valley in Malaysia, house prices are mainly concentrated below 0.5 million ringgit, which has intensified the risk of social inequality in Malaysia due to frequent major floods in recent years.

Kenanga Investment Bank's latest report quoted data company UrbanMetry's analysis, indicating that houses in flood-prone areas have lower selling prices. This forces low-income house buyers in Malaysia to often choose less secure homes due to price factors.

Most non-flood-prone area house prices range from 0.5 million to 0.8 million ringgit, making it less affected by floods for people in the middle-income and above class.

Climate change is increasingly impacting Malaysia, with frequent major floods in recent years severely affecting the people's livelihoods and economy. Reports released by the World Bank and Bank Negara Malaysia in March this year further indicate that by 2030, major floods could lead to a 4.1% loss of Malaysia's GDP.

In addition to the lower-income class, the report also points out that local small and medium-sized enterprises, as well as East Malaysia's Sabah and Sarawak, are also more impacted by climate change.

Compared to large companies focusing on climate issues, local small and medium-sized enterprises are particularly vulnerable to flooding. The exacerbation of social inequality will be another potential harm.

At the same time, it is expected that the rainfall will also increase, with Sabah and Sarawak experiencing more rainfall than the western part of Malaysia, affecting crop yields.

With the continuous rise of sea levels, flood-prone areas may further expand, posing significant impacts on the financial, industrial development, construction, and logistics industries.

Financial institutions - Rising risk of flooding credit

In addition to branch income losses and repair costs due to flooding, banks also face higher credit risks, including financial pressures faced by flood victims in repairing their homes, leading to reduced mortgage repayments; falling house prices in flood-prone areas reduce the recoverable collateral.

Kenanga Investment Bank Research believes that these factors will directly impact the balance sheet health of financial institutions.

In response, Malaysia's central bank released the "Climate Risk Stress Test" (CRST) in February, aiming to enhance financial institutions' identification of climate change risks and promote new stress testing methods.

Banks are advised to incorporate a wider range of macroeconomic variables into credit assessments, especially considering the possibility of flooding in urban and riverside areas.

Furthermore, the Sustainability Accounting Standards Board (SASB) requires banks to disclose the number and total value of mortgages in areas prone to once-in-a-century floods; insurance companies are required to disclose the potential maximum losses and coverage scope of their products.

Industrial Development - Safety and Reputation

Research by UrbanMetry has found that the prices of houses near flood-prone areas are usually lower, mainly due to poor attractiveness.

However, it is understood that developers have already recognized this issue, and are addressing this challenge by implementing flood risk management strategies, such as avoiding development in high-risk flood areas.

Although the specific impact of flood mitigation measures on house prices is still difficult to quantify, this proactive approach undoubtedly enhances developers' risk management capabilities and helps to increase market acceptance of their projects.

Analysts cited examples like Sennah Mei Industrial $SIMEPROP (5288.MY)$ in high flood-risk areas, these two projects, such as 180 acres of leisure wetlands and 53 acres of regenerated forest (KL East Park), have implemented flood management measures.

There is also Sunway $SUNWAY (5211.MY)$ when purchasing new land, it has incorporated flood standards.

Can buildings be insured against water disasters?

Recent urbanization, deforestation, and climate change have exacerbated the impact of heavy rainwater disasters. In response to the issue, the government included a budget allocation of 12 billion ringgit in the 2024 financial budget for flood prevention projects.

Measures that can be taken to address natural flood disasters include constructing dams and reservoirs to control water flow during heavy rain periods, dredging, widening, and straightening rivers to increase their capacity to handle water disasters.

Furthermore, proper maintenance of urban drainage systems can significantly reduce the occurrence of flash floods. Therefore, local governments also have strict regulations regarding drainage systems.

Malaysia has become one of the main locations for global data center development, especially in southern Johor. These data centers in Senai are strategically located in areas with low risk of water disasters.

Similarly, as another major hub for data centers, Cyberjaya is also located in high-altitude areas, free from the threat of water disasters.

Under the Twelfth Malaysia Plan, Johor has received an allocation of 30.3 million ringgit for the implementation of multiple flood prevention projects, while Selangor has also received an allocation of 1.69 billion ringgit for flood prevention projects. This will help prevent water disasters in the areas where these data centers are located.

Logistics ports - prone to service interruptions

As an important operator of a listed port, West Port Holdings $WPRTS (5246.MY)$ is committed to promoting green port operations through automation equipment and digitalized operations to reduce environmental impact.

Since 2021, West Port Holdings commissioned DHI Water and Environment consulting company to conduct a climate risk assessment and review any significant changes every five years.

West Port expects that during the concession period from 2024 to 2082, sea level rise in the West Peninsula will not affect its operation.

Looking back at the major flood events in 2021, although West Port's facilities were not directly affected, over 1000 employees were unable to work due to residential flooding.

However, in such situations, the company can only resort to natural disaster insurance plans to protect assets and employees.

For example, Swift Logistics $SWIFT (5303.MY)$ with 259 employees affected by the 2021 flood, the company allocated 0.104 million ringgit as financial assistance in the following year's first quarter.