How your annual rental increase is calculated

Nobody wants their rent increased, but landlords and agents have to adjust their rentals in relation to market factors.

Having some insight into the contributing factors to a rental calculation will help you to understand what influenced your rental increase this year.

As a rule of thumb, rents are usually increased by 8% to 10% annually, but Pieter Janse van Rensburg, the franchisee for Just Property in George, says that a number of different factors are taken into account when calculating a rental, and shifts in all of these will be passed on to the tenant.

“It’s also worth bearing in mind that many of the costs of property ownership – including interest rates, insurance and municipal rates – do not remain static, so landlords have to recalculate annually to ensure that their operating costs remain viable,” says Janse van Rensburg.

These are some of the factors that he says could influence an increase:

The market value of the property – Rental prices are usually calculated at between 0.8% and 1.1% of the value of the property monthly. Therefore, each year, the increased market value will have an influence on the rent that is charged. Tenants should be aware of fluctuations in local property prices so that increases don’t catch them off guard.

Historical trends – Generally speaking, with all other factors remaining more or less the same, the annual rent increase is likely to follow the same pattern as previous increases. If this is your first year of renting, find out what the increases have been in the past so that you can prepare for what they will be in future.

Consumer Price Index – The CPI measures inflation that affects consumers and will also be taken into account in rent calculations. Landlords and agents will have to consider what tenants can afford in high-inflation years, while securing their own profitability under the same conditions.

Developments in the area – Changes in the surrounding neighbourhood may also influence rental increases. A new shopping centre or school may make the area more desirable for families or workers. Obviously, any improvements in the suburb in which you are renting will also benefit you, so increases for these reasons also need to be considered.

The market – While there are many external factors that affect how rental increases are determined, landlords and agents are also influenced by what the market dictates. They can only increase their rentals to an amount that tenants are willing to pay so they will have to take care to make any adjustments fairly and realistically.

Any room for negotiation? Although you should bear in mind that all lease agreements are business transactions and rent increase are calculated for this purpose, your best hope for the lowest possible increase is to be an exemplary tenant. Always pay your rent on time and take good care of the property you are renting. Sensible landlords would prefer to keep you on if the relationship has been positive.

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