Getting both parties to agree on a reasonable annual rental escalation is not an easy conversation to have. According to Rawson Property Group, a fair negotiation is in the best interests of everyone involved.
While many are under the impression that a 10% annual rental increase is standard, there are no legislated standard figures. Annual escalation is set on a case-to-case basis. However, this does not allow a landlord to simply pick a number and force tenants to sign on the dotted line.
The Rental Housing Tribunal, which is appointed by the provincial Minister of Human Settlements to settle disputes between tenants and landlords, makes it abundantly clear that increases must be reasonable. This means that landlords must be able to properly back up their escalation figures with well-researched industry trends.
TPN Credit Bureau is a service which specialises in vetting tenants for rental properties, and also keeps track of the national average inflation rate. Regional averages have varied dramatically, ranging from an 8.4% increase in the Western Cape to a 0.3% decrease in KwaZulu-Natal.
Landlords need to understand these regional trends, as well as variances between suburbs, property types and localised supply and demand statistics, before negotiating a new rental rate.
The trends of specific tenants must be taken into consideration as well. A tenant who takes good care of the property, pays on time and communicates well with their managing agent is worth their weight in gold. Rawson Property Group advises that tenants make an effort to be good ones, as this could result in a slightly lower escalation rate or more bargaining power in the tenants favour.
Cape Town rentals have experienced a huge spike recently, with tenants shopping around and availability of rentals increasing. The best way for the landlord to make a good judgement call is to have in-depth experience of the current market, and it is advisable for tenants to do the same.
According to the PayProp Annual market Report 2017, in January 2017, the year-on-year growth trend for rent inflation peaked at 8.3% before dropping 6.34% in July. A big decline in September brought year-on-year growth to less than 5%. The last quarter, however, saw growth recovered to 5.75% in December.
It is important for landlords to keep track of changes in inflation, as these may impact the cost of rent for tenants.
These, however, are simply guiding factors, as there is no limit to how much rental inflation should increase or decrease.
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