Knight Frank & Rutley
RENTALS can be generally payable for two specialist areas – residential and industrial/commercial.
The Rent Act, Statutory Instrument 626 0f 1982 defines fair rent as follows;
The rent which will provide lessor with a reasonable return on the value of the dwelling , after allowing for recurrent expenditure by lessor in respect of the dwelling and
Represents a reasonable charge to the lessee for the dwelling and the amenities, facilities, services and other things provided therewith by the lessor.
A reasonable return on the value of the dwelling:
A reasonable return on the value of the dwelling has always been considered to be about 10% net minimum.
An average house in the low density is currently valued at $150 million. At least 10% works out at $1 250 000 a month yet the current rent for most houses is around $500 000.
An average house in the high-density suburbs is currently valued at $40 million.
The rent at 10% net works out at $333 333 a month. The asking rental for properties in the high density is $150 000 a month.
Therefore contrary to widely held perceptions there is no exploitation at all.
The Rent Act SI 676 of 1983 defines a fair rent as a rent which will provide the lessor with a reasonable return on the depreciated replacement value of the premises, after allowing for recurrent expenditure by the lessor in respect of the premises or the open market rental.
Whichever is lower.
Given the replacement cost of $1,5 million per square metre the depreciated value is always found to be higher than market value.
Market value depends on demand and supply and more importantly what has been achieved in the market. If we have managed to lease a vacant and to let shop for $6 000 per square metre, that becomes the market rent.
The hyperinflationary increases have made a mockery of percentage increases that we were used to.
Since June last year inflation has increased by 1 000% ie everything has increased 11 times.
A rent of $35 000 a month has multiplied 11 times to $385 000 a month. This is necessary to give lessor a fair return. Unfortunately all other costs have increased.
These include cleaning, security, service and maintenance charges, electricity, water and rates. Lessor has no control over these.
The Zimbabwe Electricity Supply Authority (Zesa’s) charges were recently increased by 400%.
Separate meters which used to lower maximum demand charges are now being phased out in favour of bulk meters.
This has resulted in huge maximum demand charges.
Rates have reached unbelievable proportions.
Some of these charges are now more than the rent payable on the building. It does not make sense but that is the reality on the ground.
Landlords have to recoup these charges from tenants or else they will record negative returns or losses.
These are the supervisory bodies that ensure that fair rents are determined in accordance with the definitions above. In the case of disagreement they act as the final arbiter.
However these bodies are now largely non-functional.
Herewith a quote from the Rent Board:
“The Rent Board which falls under this ministry is no longer functional henceforth all rental disputes should be referred to the arbitration centre for ruling”.