Raise your Rental and Risk losing a Good Tenant. Is it Worth it??
Singapore and Hong Kong is always being compared to each other in terms of Land Size, Population Size as well as both being a former British Colony.
Of course, there are some distinct differences such as demographics as HK is made up mostly Chinese whilst Singapore is multi-racial comprising mostly of Chinese, Malays, Indians and Eurasians. In a Bloomberg article on 4 March 2022, it seems that many in HK are leaving to set up base in Singapore.
Kyunghee Park
Hence, one can assume that this may somehow contribute to rents rising. In fact, there was an article or commentary which states that Tanglin Trust School - An International School originally setup in 1925 to provide the British type of Education for the British Expat Community.
According to a Reuters Report published by US News on 3 March 2022, it says that Residential Property Rents are going through the Roof. Depending on which side of the equation you are on, this news may or may not be music to you.
The question on landlord minds is whether they should raise price upon the expiry of the tenancy or should they maintain it or even consider a new tenant who can provide a higher price.
Should you as Landlord raise the rental on Expiry?
With the expected increase in Property Tax in 2023 announced in the Budget 2022, Landlords would be tempted to increase rental prices at least to offset the increase in Property Tax. Hence, it would be wise to increase the rental amount but just enough to offset the property tax and not to take advantage.
Advice to Landlords
If you have a good tenant who pays on time and does not cause trouble, try to keep your tenant and if you really need to raise rates, do it in moderation with a reasonable profit margin.
Imagine this scenario, your tenant is currently paying you $4,000 monthly rental and you decide to increase the rental amount by 20%, giving it a new rate of $4,800. Any discerning tenant would move out to another location.
The New Rate
You lose your tenant who refused to pay your new rate of $4,800. Now you need to hire an agent to market your home. Lets Break down the figures
THE BREAKDOWN based on finding a tenant IMMEDIATELY
REVENUE
Revenue from current Tenancy: $4000 X 24 months = $96,000
Revenue from New Tenancy: $4000 X 24 months = $115,200
GROSS PROFIT
Additional Profit from New Tenancy: $115,200 - $96,000 = $19,200
POTENTIAL EXPENSES
For 2 year lease, the Agent's Commission is 1 month: $4,800
Total potential expenses/lost: $4,800
NET PROFIT FOR 24 MONTHS
Profit - Expenses: $19,200 - $4,800 = $14,400
NET PROFIT FOR PER MONTH
$14,400 / 24 = $600.
From the figures, it can be seen that the potential profit margin is only $400 per month for an increase of monthly fees by 20%. Furthermore, the landlord needs to consider if you can get a new tenant in 1 month.
THE BREAKDOWN based on finding a tenant in 1 month
REVENUE
Revenue from current Tenancy: $4000 X 24 months = $96,000
Revenue from New Tenancy: $4000 X 24 months = $115,200
GROSS PROFIT
Additional Profit from New Tenancy: $115,200 - $96,000 = $19,200
POTENTIAL EXPENSES
For 2 year lease, the Agent's Commission is 1 month: $4,800
Assume that the agent needs 1 month to find a tenant: $4,800
Total potential expenses/lost: $9,600
NET PROFIT FOR 24 MONTHS
Profit - Expenses: $19,200 - $9,600 = $9,600
NET PROFIT FOR PER MONTH
$9,600 / 24 = $400.
THE BREAKDOWN based on finding a tenant in 2 Months
REVENUE
Revenue from current Tenancy: $4000 X 24 months = $96,000
Revenue from New Tenancy: $4000 X 24 months = $115,200
GROSS PROFIT
Additional Profit from New Tenancy: $115,200 - $96,000 = $19,200
POTENTIAL EXPENSES
For 2 year lease, the Agent's Commission is 1 month: $4,800
Assume that the agent needs 2 month to find a tenant: $4,800 x 2 = $9,600
Total potential expenses/lost: $14,400
NET PROFIT FOR 24 MONTHS
Profit - Expenses: $19,200 - $14,400 = $4,800
NET PROFIT FOR PER MONTH
$4,800 / 24 = $200.
SUMMARY
Profit(24 Months) | Profit (Monthly)
Landlord can NEW tenant immediately: $14,400 | $600
Landlord can NEW tenant in 1 MONTH: $9,600 | $400
Landlord can NEW tenant in 2 MONTH: $4,800 | $200
The question is whether it is worth the additional profit given the time and effort that is needed.