What is Considered a Reasonable Rent Increase?
Every year, it becomes more expensive to live and the price of pretty
much anything goes up. And, unfortunately, thisdoes not exclude rent.
Landlords often push up their rent to accommodate for increased rates
and taxes or increased water and electricity bills.
Tenants will always have a choice to renew their contract at the end
of the rental period at an increased rental amount.
And, this is often an issue that causes tension between the landlord
and the tenant because the tenant might already feel
that s/he is under enough financial strain as it is. Having said that,
the landlord might also be experiencing the same
feeling.
Here is a breakdown of the main elements in this discussion:
Factors:
The real challenge lies in a reasonable increase that is fair towards
both parties. Real estate industry leaders report that rental amounts
usually go up between 6% and 8%, which tends to be in-line with the
rate of inflation. Landlords thus need to keep the Consumer Price
Index in mind, which is used to calculate inflation on products
purchased by consumers. They can then calculate a reasonable rental
increase based on that number.
Inflation is key:
The inflation rate hiked up to 4.7% in December 2017, which means that
inflation could affect a landlord’s profitability and a tenant’s
affordability if the rent is not reasonable enough.
Landlords who increase the amount by more than the inflation rate are
at risk of losing their timely-paying tenants, as they might find other
accommodation.
In the economic climate such as the one we are currently in, tenants
who pay regularly and who adhere to the due date stipulated in the
contract are becoming increasingly hard to find.
Statistics have shown that tenants who paid in full and stood on time
were 67% last year. This has dropped considerably since 2014.
Safeguard investment:
Tenants are finding it more and more difficult to pay on time and in full,
which makes a correctly-paying tenant all the more financially challenging.
A number of market factors need to be taken into account. A new development
or complex, for instance, might reflect positively on rental calculations,
whilst dilapidating buildings and overall bad neighborhoods might impact it
negatively.
Importance of debt record:
A rise in inflation has resulted in a rise of debt in households which
contribute to deteriorating credit records.
Many rental agencies have reported that more than half of rental
applications that they perform checks on have impaired credit records.
This is due to the rising cost of month-to-month living.
Bearing this in mind, landlords need to consider the tenant’s behavior
over the rental agreement period. So, it may actually be worth the
landlord’s while to slowly increase the annual rent adjustment based
on the good paying behavior of the tenants as a type of reward.
Mutual respect:
In order to maintain and build a good relationship between these two
parties, there has to be a sense of mutual respect from both sides.
Real estate agents are often mediators in situations of rental increases
and can provide sound advice on emerging trends within the rental real
estate market. They are also more familiar with area-based factors that
might affect the rental increase and rental returns.
In the current economic climate, it is now more important than ever to
work with and walk alongside a reputable real estate agency who will be
able to negotiate the best terms for both the landlord and the tenant.
SOURCE: Immoafrica
