select
|

Rental increases: what is fair?

Many landlords want to know by what amounts and when they could increase the rentals on their properties.

These property owners would possibly prefer to automatically increase this each year (many use a standard rate of 10%) but the yearly increment does depend on various factors, and landlords need to understand what these are because not all increases can be passed on to the tenant, says Michael Bauer, managing director of IHPC estate agency.

Tenants, too, must understand that increases each year are often necessary, he said.

Commercial and residential property rentals differ, so these should be separated and worked out differently.

With commercial property there is usually a pre-negotiated escalation clause but what the landlord here needs to take into account is his potential loss of income and the increase in running expenses, said Bauer. The base rent might escalate by 8% and he might lose because the interest rate might increase that year by 1% and that increase on his monthly bond repayments cannot be passed on to his tenant.

The commercial operating expenses, i.e. water, electricity, etc. are usually pre-negotiated, with possibly around 12% increase each year.

With residential properties, particularly sectional title units where there aren't pre-paid meters for the water and electricity, the levies might go up by a large sum because of increases to water and electricity charges and, because the landlord cannot meter these separately, cannot pass the actual consumption on to the tenant, but only the year to year increases (the difference) in those operating expenses, he said.

The usual thought by tenants is that an increase based on the inflation rate is fair, but this isn't always enough to cover the landlord's increased expenditure on the property, said Bauer.

'What has to be assessed is the budgets on both landlord and tenant's sides and demand for the unit in the market, which could affect how much rent can be charged each month. In some cases the landlord might benefit from losing one tenant who cannot pay the increased amount but he might be able to charge 30% more to a new tenant, because the demand is so high for units in that particular area or upgrades have been made to the building or unit,' he said.

'The key for all landlords, is not to buy property at too high a price because you will be under pressure to charge higher rentals to make a reasonable return. Don't price yourself out of the market by charging too high a rental and maintain and upgrade your property to stay competitive with your operating expenses,' advised Bauer.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    • 18 Jan 2018
      New year, new goals! If you’ve resolved to purchase your first property in 2018, then this 6-step guide from the Rawson Property Group is a must-read. It will help you navigate and simplify what is often be seen as a confusing process of buying your first home – right from the house-hunt to the house-warming.
    • 17 Jan 2018
      While the current property market may still favour buyers, it doesn’t mean that they shouldn’t be well prepared before putting in an offer to purchase.
    • 17 Jan 2018
      Lightstone lists Blair Atholl as the most expensive suburb with an average house price of R11.2 million, followed by Westcliff (R10.5 million), Dunkeld (R9.3 million), Sandhurst (R9.1 million) and Inanda (R7.2 million).
    • 17 Jan 2018
      As it currently stands, there are four main ways in which a home can be bought in South Africa, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who adds that deciding in which legal entity to purchase the property is not a decision that should be entered into lightly, as each has its pros and cons.
    • 16 Jan 2018
      The start of the new year is symbolic of new beginnings. A good time to take stock of one’s possessions as well as how necessary they actually are. However, seeing as the process may appear daunting – a plan goes a long way.
    • 16 Jan 2018
      The Western Cape is still in the throes of a severe drought and many households have to adjust the way they use and save water. It is a little more complicated in sectional title schemes, however, as it is not that easy to implement grey water systems for multiple users and it is also difficult to monitor water usage accurately if there are no separate water meters
    • 15 Jan 2018
      In ideal rental situations, when a lease is signed the tenant will stay for the full duration of his lease without any complications and the landlord will uphold his obligations, creating a win-win situation for tenant and landlord.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK