Escalation on rentals based on CPI

CPI is the indication of inflation and affects how escalation should be applied to rentals.
Although it is still customary in the industry for landlords/agents to apply a yearly escalation rate of 8% to 10%, such an escalation is not aligned with the inflation rate. In rentals within the R10K upwards bracket, a yearly escalation of 10% very quickly puts the tenant in a position where he can no longer afford the rental. The rental also becomes inflated as a result and no longer identifies with the current market values.

The most fair escalation rate, fair to the landlord (who has to cover his increasing costs in rates and maintenance mostly) and to the tenant (who has to cope with increasing living costs in services like electricity, water, alarm etc) is a rate based on CPI.

As of 14th December 2016, CPI inflation rised to 6.6% y/y with a forecasted drop in 2017 as supply side price pressures are expected to dissipate. In line with consensus forecasts, CPI inflation lifted to 6.6% y/y in November, from 6.4% y/y previously. The largest contribution, of 1.8%, to the headline annual CPI outcome stemmed from the food and non-alcoholic beverages component where food prices remained elevated at 11.8% y/y in November, but moderated from 12.0% y/y in October.



error: Content is protected !!