Sunday, March 7, 2021

10 percent rental increase is not a standard percentage ÔÇô Property Expert

Research conducted by Knight Frank on real estate markets in Africa, a continent it considers a region of growth and opportunity, discloses that Botswana’s residential market is plagued with high demand for accommodation which however is against the backdrop of limited stock.

“The current housing supply does not sufficiently meet the demand pressures emanating from population growth, increased numbers of single family households, inward migration and the growing student and elderly populations. There is a big gap in the market for low-to-medium cost housing, despite the increased prevalence of sectional title ownership” stated the Africa 2015 report.

The scant availability of housing provokes a sense of hurry over houses that the market puts up for rental, a scramble that makes people believe that every offer that comes along is a golden opportunity worth grabbing immediately. Economists posit that a price is a reflection of both the supply and demand forces, which in the case of Botswana the limping supply of residential property against the heightened willingness to find accommodation has caused prices to shoot up. Knight Frank reports that the asking rental price for a 4 bedroom executive house in a prime location is US$ 2180 (equivalent to P21, 145) but however highlights that there are a small number of people with both the willingness and ability to access that top end of the market in Botswana.

As it is the experience of many, this hurried take of offers has unfortunately nibbled out an important talk that should take place between a tenant and landlord before signing a lease agreement. According to property experts, a majority of tenants are saddled with the habit of accepting terms put before them by landlords without attempting to make them favourable to their own conditions. Mpho Moremong-Gobe, a property industry titan emphasizes that everything is subject to negotiation, whether it concerns the amount of rental or rental increase demanded by a landlord, arguing that Batswana must forgo the take it or leave it culture of reaching an agreement and hence make it point to discuss all terms of a rental lease following which an agreement can be drawn. Botswana’s rental market allows a tenant and landlord to freely agree between themselves on conditions such as the amount of rent to be paid and the percentage of rental increase to be applied.

An issue that is central to the dynamics of a lease rental agreement, which as it appears has gone unchallenged for far too long is that of the 10 percent rental increase, a percentage increase that has solidly set itself as the standard rate in lease agreements. Moremong-Gobe explained that the 10 percent is a historical amount which was based on and justified by the inflation rate prior to the millennium era, which at the time averaged 10 percent. She highlighted that inflation rate has since dramatically sank but it appears however that many people have not yet embraced the change. According to Bank of Botswana the plunging oil prices dragged inflation down to an all time low of 2.8 percent in a period of 15 years in February this year. It is assumed that people have religiously kept to the 10 percent rental increase either out of ignorance of its past or that many people are typically oblivious to economic activities such as inflation movements that affect the price of basic needs such as accommodation.

Moremong-Gobe pointed out that there are no legal guidelines on how much rent can be increased by which means that escalation is generally linked to year to year inflation rate. She added that she considers a 7-8 percent rental increase a reasonable asking amount under the current low inflationary environment, citing that a percentage above 10 percent falls outside a realistic and fair increase.

The property market is currently in a slump, which Moremong-Gobe described as buyer’s or tenant’s market, which loosely translated means that buyers and tenants call the shots. This is because in this property cycle properties generally stay too long in the market which therefore means that tenants can take advantage of landlords’ desperation to have their houses occupied. “Getting a good deal will depend on how good you are at negotiating” she said.

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