CLOSE X

Register - if you don't have an account

Yes! Sign me up for Global Property Guide's fortnightly email newsletter.


Login - for registered users

Forgot Password?
Explore destinations
continent map couldn't be loaded Pacific Europe & Russia North America Latin America Asia Africa Middle East Caribbean

 


Investment Analysis

The pros and cons of rent control

by PRINCE CHRISTIAN CRUZ, SENIOR ECONOMIST

Jan 19, 2009


Rent control, seen by many economists as old-fashioned, has recently made a surprising comeback in one group of high-growth, dynamic economies – the Gulf.

In December 2007 Dubai’s government toughened up its 2005 Rent Law and reduced the maximum 2008 rent increase to only 5%. Abu Dhabi has likewise capped 2008 rent hikes at only 5%.

In neighboring Qatar, a rent freeze has been implemented while the government is determining the new rent increase cap. For the past two years to February 2008 rent increases were limited to 10% annually

In adopting rent control the Gulf has moved in the opposite direction to the rest of the world. Elsewhere, rent control regimes have generally been dismantled or softened since the mid-1990s. R ent control has been removed in most of Eastern and Central Europe. Asia has also followed the trend: China, Japan, Malaysia and Singapore have lifted rent controls since the early 2000s.

The Gulf measures have dismayed landlords, and alarmed property investors.

Below, the pros and cons of rent control regimes, which now exist in about 40 countries are reviewed by the Global Property Guide.

The Global Property Guide believes that rent control is generally harmful, but it can be benign, if:

  1. It is implemented so that its market-restraining effects are modest
  2. It helps to defuse public protest about high rents, and
  3. It assists citizens by providing an agreed framework for contracts.

Different forms of rent control

Rent control in Sweden is an interesting example.Rents are set far below reasonable returns-on-investment. A European University Institute (EUI) study calculates that:

  • To make a 5% return on investment, a Swedish developer would need to set rents 70% higher than allowed by the Rent Tribunal.
  • Rents in all dwellings must match rents for alternative, comparable dwellings, based on size and ‘attractiveness’, primarily rents in low-rent municipal houses.
  • Rents are little influenced by location, so that metropolitan units are specially underpriced.

The system lacks transparency and predictability, so that few new private sector apartments are now being built in Sweden. Of the approximately 30,000 dwellings completed in 2006, only 36% were intended for rental. In comparison, from 1990 to 1996 more than 50% of new dwellings completed were intended for rental.

TYPES OF RENT CONTROL

  1. Tenancy rent control
  2. The most common form of rent control is where rents are initially freely negotiable but there is a limit on the amount of rent increase (‘tenancy rent control’ or ‘second-generation rent control’).

    The maximum allowable increase is either:

    • A fixed percentage (e.g. Dubai, Philippines, Pakistan, Tunisia),
    • Or a fraction of the construction cost index (e.g. France) or consumer price index or CPI (e.g. certain cities in the US, Italy, Netherlands, Spain, Switzerland, Colombia, Uruguay)
    • Or a combination of the two (e.g. Canada).

    Tenancy rent control is typically accompanied by vacancy decontrol – i.e., when the unit is vacant, rents can be increased by any amount. Newly constructed buildings are usually exempt from rent control.

  3. Maximum rent systems
  4. Sometimes the authorities determine the maximum rent, and apply it equally to new and old tenancies. Often, the maximum allowable rent is a certain percentage of the property value (enforced in India, Taiwan, Luxembourg, Jamaica, Dominican Republic, Syria, and Costa Rica). The property valuation is typically based on historical cost and not on the current property value, so that real rental returns fall over time.

  5. Rent freeze systems (“absolute” rent control or “first generation” rent control)
  6. Sometimes rents are kept at a pre-determined level, typically that of the year when the law was introduced (such is the case in Qatar). For newly constructed units, no rent increases are allowed after the unit is rented out.

    Such laws were implemented mainly after World War II to avoid rapid increases in rent due to increased demand from refugees or from returning soldiers. This type of rent control has mostly been abolished, relaxed or is largely un enforced (e.g. US Virgin Islands).

  7. Split systems
  8. Here only a certain portion of the housing market is under rent control ; typically, rental units for poor households or de-nationalized buildings (e.g. US, Philippines, Cyprus, Czech Rep., Dominica, Aruba, Bahamas, Bermuda, Trinidad and Tobago, and Honduras).

  9. Ineffective systems
  10. While most rent control laws are biased towards tenants, some are actually benign due to the way in which they are implemented – or not implemented, as the case may be. Non-implementation is a surprisingly widespread phenomenon.

    In some countries, there is a prescribed amount of rent increase - but the parties are free to accept it or not. If one of the parties feels that the increase is too much or too little, they can ask for the rental authority to adjust the rent (enforced in the province of Quebec, Canada).

    In others, the landlord can apply for a rent increase higher than the prescribed amount, if he would otherwise experience hardship, or for capital recovery or renovation.

    Inflation is also significant. In the Philippines average inflation is around 4% - 5% - but the annual rent increase cap is 10%. This is largely benign, and gives landlords plenty of room for capital recovery.

    In other cases, the rent control law is largely unimplemented (US Virgin Islands, Taiwan). In the Bahamas, for instance, rents for houses worth B$25,000 and below are government-determined, according to a 1975 law, but no house in the Bahamas is now worth so little.

LANDLORD - TENANT RATING SYSTEM

PRO-TENANT NEUTRAL PRO-LANDLORD
Aruba Australia Anguilla
Austria Barbados Argentina
Belgium Chile Bahamas
Canada Colombia Bahrain
Cape Verde CNMI Belize
Costa Rica Cook Islands Bermuda
Cyprus Croatia Botswana
Denmark Finland Brazil
Dominican Republic Greece Bulgaria
Ecuador Grenada Cambodia
Egypt Guatemala Cayman Is.
El Salvador Honduras China
Estonia Hungary Czech Republic
France Indonesia Dominica
French Polynesia Lebanon Ghana
Germany New Zealand Guam
Guadeloupe Norway Hong Kong
India Pakistan Iran
Ireland Poland Jordan
Italy Slovak Republic Kenya
Jamaica Latvia
Lithuania Liechtenstein
Luxembourg Macedonia
Malaysia Malta
Martinique Moldova
Mauritius Monaco
Mexico Morocco
Netherlands Namibia
Netherlands Antilles Nicaragua
Paraguay Oman
Peru Panama
Portugal Philippines
Puerto Rico Romania
Qatar Senegal
Russia Seychelles
Spain Singapore
St. Vincent & Grenadines Slovenia
Sweden South Africa
Switzerland South Korea
Trinidad and Tobago Sri Lanka
Turkey St. Kitts & Nevis
United Arab Emirates Syria
United States Taiwan
US Virgin Is. Tanzania
Venezuela Thailand
Tunisia
Turks & Caicos Is.
Uganda
Ukraine
United Kingdom
Uruguay
Japan
Nigeria
Vietnam
Source: Global Property Guide

In defense of rent control

A common (and much abused) justification for rent control is the right to housing, which is sometimes protected by the constitution.

Another justification is to correct market inefficiencies such as information asymmetry and high transaction costs. Because of the high cost of moving, tenants can arguably be pressured by landlords to accept rent increases. Tenants may also be unaware of the real condition of units until they move in. If the tenant complains, the landlord may threaten to increase the rent.

Standard contracts perform a service to both landlords and tenants. In many cases in modern society, the state intervenes in contractual relations between individuals in order to provide simplicity, clarity, and order. Both landlord and tenant are helped if standard provisions exist, for instance, which determine what should be agreed on - the initial rent, rent adjustments, date of payment, penalty for delays, conditions for eviction and such. These can provide both flexibility and security.

The problem with rent control

The principal argument against rent control is that it tends to distort economic incentives, leading to inefficient distribution of resources.

  • Rent control reduces the incentive of landlords to supply rental units. Rental units tend to be in scarce supply under rent control. Ironically this leads to an escalation of complaints against the landlord class. Vacancy levels tend to be relatively low and a vailable units tend to be rented only under strict conditions, again aggravating relations between landlords and tenants.
  • Rent control discourages landlords from maintaining and repairing units till the end of a tenancy.
  • There is also an incentive for landlords to discriminate against tenants likely to stay for a long time, like retirees or couples with children.
  • In some countries, landlords collect key money to offset the losses occasioned by rent control.
  • Rent control tends to lead to bullying and illegal behaviour by landlords. If rent increases are allowed between vacancies, landlords will try to evict tenants in any way possible. This will likely translate into demands for government protection for tenants, i.e., into a further layer of bureaucracy and policing.
  • Tenants in tenancy rent controlled units are less willing to move to other places, despite the possibility of earning higher wages.

According to a study by Basu and Emerson (2000), “t he removal of rent control can not only increase efficiency in the rental market, but can also lead to a general lowering of rents, making all tenants better off.”

Lessons for rent control

When might rent control be desirable? Where it will help provide all parties with contractual certainty.

Global Property Guide believes that rent control can be harmless or even (in some cases) mildly beneficent, where it occurs in the context of standardization of contract structures, designed to increase market certainly and to provide guidance for citizens.

However as noted before, rent control should be minimalist.

  1. The rent control scheme should be simple.
  2. It should be easy to determine if the unit is covered by rent control or not. It is generally easier to determine if the unit is covered by rent control if the basis is the actual rent, and not property value or construction cost. Using furnished vs. unfurnished for rent control delineation can also lead to confusion.

  3. The basis should be transparent.
  4. Using the CPI or inflation as the basis for rent increases is generally desirable, because it is transparent. Most central banks and statistical agencies regularly report inflation.

    Using a formula that only the rent tribunal can understand and configure creates abuse and corruption.

  5. The rent control system should allow capital recovery.
  6. The rent increase structure must allow landlords to recover their investments and certain costs. Without this basic precondition, private housing investment will grind to a halt, with all the attendant evils mentioned earlier.

  7. The scheme should be predictable.
  8. If the allowable rent increase is changed annually, then the government must announce it early to allow landlords and tenants to negotiate and evaluate their options.

  9. The rent control scheme should be easy to implement and enforce.
  10. Decisions must be easy to execute and implement. Given the cyclical nature of the rental market, prolonged litigation and eviction proceedings can lead to substantial losses for the landlord and/or immense distress to the tenant.

  11. Special courts can help
  12. The legal system is an important variable. In most countries in Europe, and countries with English common law systems, a rent tribunal or rent board hears complaints regarding rent adjustments. The decision can only be appealed to the tribunal itself. The process is usually swift and efficient.

    In many other countries, on the other hand, cases related to rent adjustments are handled by generalized courts and can be appealed to the highest courts – which usually means a cumbersome and expensive process.

Canada, for instance, has a reasonable system. Although the laws appear to be pro-tenant, the system is not entirely disadvantageous to landlords. Allowable rent increases are based on each province’s CPI, allowing regional disparity.

A landlord can usually petition for a rent increase above the "rent increase guidelines" set for the province. Landlords doing so have to apply to that province's rent authority. Landlord-tenant disputes are resolved by the provincial (small claims) court system, or through a tribunal/arbitration system. The system is very efficient.

Rent control regimes around the world

RENT CONTROL IN ASIA

COUNTRY KEY PROVISIONS
India There are two types of tenancy agreements in India: Lease Agreements which are covered by rent control laws, and Lease and License Agreement which are not.

A Lease (or Rental) Agreement is covered by restrictive rent control laws. The amount of rent that can be charged is based on a formula devised by the local executive, legislative or judicial government, as the case maybe. For Delhi, the maximum annual rent is 10% of the cost of construction and the market price of the land, but the cost of construction and the price of land are both based on historical values and not the current market valuation. The older the property, the smaller the rent the can charged. Rents can only be increased by a fraction of the actual cost the landlord has incurred in improving the property.
Pakistan In Islamabad Capital Territory rents can be freely agreed between landlord and tenant. The rent of a building is automatically increased at the end of every three years of the tenancy by 25% of the rent already being paid by the tenant, unless the landlord and tenant agree to increase the rent by an agreement in writing.

Five other areas (Punjab, NWFP, Baluchistan, Sindh and Cantonment areas) are covered by distinctive provincial legislation. The Rent Controller is empowered to fix a fair rent, on application by the tenant or landlord. The following factors are considered in deciding on a fair rent:

  • The rent of the same building or similar accommodation in the locality at the time, and during the 12 months prior to the application;
  • The rise in the cost of construction, repairing charges, and taxes;
  • The rental value of the building in the Property Tax Assessment Register of the Taxation Department (or the assessment list of the Cantonment Board) in the Cantonment areas.
In the Cantonment areas, and in Punjab/NWFP/Baluchistan, if the fair rent exceeds the rent being paid by the tenant on the date of filing the application, the maximum rent increase is 25%.

In Sindh, where a fair rent has been fixed, no increase may be affected for three years. In any event, the increase in rent may not exceed 10% per annum on the existing rent.
Philippines According to the Rent Control Act of 2005, a maximum of 10% annual rent increase is allowed for properties with monthly rent not exceeding PHP10,000 in urban areas such as Metro Manila and PHP7,500 in other areas. (It is worth noting that properties covered by Rent Control law are exempt from 12% VAT.)
Taiwan The Land Act (last amended in 2001) limits the annual rent to 10% of the property value.
Source: Global Property Guide, Contributing Law Firms

RENT CONTROL IN THE CARIBBEAN

COUNTRY KEY PROVISIONS
Aruba The Ordinance On The Rent Assessment Advisory Committee (1991), known as the “Ordinance” applies to houses with a building value (including the ground value) of less than AWG 100,000 (approx. US$55,000), which include residential housing, shops, bars, restaurants, hotels and offices, with the exception of buildings located in hotels, airports and seaports. According to the mandatory rules of law, the Rent Assessment Advisory Committee - known as “the Committee” - is charged with the determination of the rent and with any requests to increase such rent. The Committee will base the rent on the percentage of the buildings costs.
Bahamas The Rent Control Act of 1975 applies to dwellings with a total value less than BSD25,000 (1B$=1US$). Rent shall not exceed 15% of the assessed value of the house and land, 20% when furniture is included. According to one parliamentary minister, no house right now in Bahamas is worth below B$25,000.
Belize The Rent Restriction Act limits the amount of rent increase to 10% annually or to a prescribed level mandated by the Rent Assessment Board of each judicial district.
Bermuda All homes and apartments (flats) with an Annual Rental Value (ARV) of less than BM$24,600 are subject to rent control, according to the Rent Increases (Domestic Premises) Control Amendment Act 2004. Rent increases must be agreed upon by the landlord and tenant. In case the tenant refuses to agree, the landlord must ask for an approval from the Rent Commissioner.
Dominica The Tenancies and Rent Control Act applies to dwelling houses where the rent is less than EC$800 (US$300) per month, and to residential land where the rent is less than $100 (US$37) per year.
Dominican Republic There is a universal rent control in Dominican Republic with maximum monthly rent fixed at 1% of the value of the rental property. The tenant can request the Rent Control Authority to reduce the rent if it exceeds the allowed maximum. If the landlord wishes to increase the rent, a permit must be filed and approved by the authorities, subject to appeal to a special commission.
Grenada Rent increases can be reviewed under the Rent Restriction Act, Chapter 286 of the Revised Laws of Grenada, 1990 edition.
Guadeloupe Similar to France, rent increases are tied to the INSEE construction cost index.
Jamaica The landlord must make an application to the Rent Assessment Board. The latter sends a Valuation Officer to inspect the rental property. The Assessment Officer issues a Certificate of Assessed Rent, which contains the standard rent applicable to the premises.

The standard rent is an annual percentage of the assessed value of the premises and is prescribed by the Minister. The current rent ceiling is 7.5% each year. The Board takes into consideration any increases in property taxes, improvements to the property and other related factors.
Trinidad and Tobago Furnished dwelling houses with a monthly rent of TT$1,000 (US$161.29) or less are subject to rent restriction. Unfurnished dwellings with a monthly rent of TT$1,500 (US$241.93) are likewise covered. Under the Rent Restriction Act, rent adjustments for covered dwelling houses are subject to the approval of the Rent Assessment Board. Either the landlord or the tenant may apply for a review of rent.

Every tenant and landlord, whether or not the dwelling house is covered by the Rent Restriction Act, is required to register with the Rent Assessment Board. The landlord has to register only once, but the tenant must register every time he signs a contract. If the tenant is unregistered, he loses most of his rights.
US Virgin Is. According to the Virgin Islands Code (Title 28, Ch. 31, Sec. 834), rents in the US Virgin Islands are frozen at their 1947 level. For housing accommodations, the maximum rent ceiling is the rent that was in force and effect on July 1, 1947. For buildings created and/or rented after July 1, 1947, the maximum rent allowed is the first rent charged for the unit. However, the rent law is generally ignored.
Source: Global Property Guide, Contributing Law Firms

RENT CONTROL IN EUROPE

COUNTRY KEY PROVISIONS
Austria In the unbefristet (unlimited contract) and the befristet (contract limited to a specified number of years), rent is subject to being set by the local authority, at the request of the tenant.
Belgium The parties may freely agree on the rent. However rent increases above the rate of inflation cannot be written into the contract. In fact, the law provides that if the contract is in written form, the rent will automatically be adapted once a year in accordance with the cost of living.

In cases where there is disagreement, the Justice of Peace (Juge de Paix) has jurisdiction. The judge can allow a rent modification, if new circumstances have provoked a rise or decrease of the normal rental value 20% above or below the rent previously agreed.
Cyprus The rental market can be divided into two broad categories: Houses controlled by the Rent Control Law (1983), and the free market. The Rent Control Law and its updated amendments apply to tenancies of residential or business premises which lie within what the law defines as ‘Controlled Areas,’ i.e., towns, suburbs and rural centres, which were completed before 29 December 1995.

After the first tenancy has expired or been terminated, the law allows for an agreed increase of maximum 14% of the existing rent, but not before the lapse of two years from the date of the last application, or the date of the last voluntary increase. In case of refusal by the tenant, the Rent Control Courts will determine a ‘reasonable rent,’ taking into account the opinion of the official valuer, and factors such as age, dimensions, location and condition.
Czech Rep About 90% of the population still lives in controlled rental housing:
  1. controlled rents: rents are pegged per square metre according to the size of the town and the category of flat (there are 4 categories); or
  2. materially regulated rents: rents are calculated according to costs.
Foreigners, renters of housing built after 1993, and new renters of houses with vacant possession, live in the rent-free market.
Denmark Rents on dwellings constructed after 1991 are exempt from rent control.

There are five different forms of rent control in Denmark; the system is very complex. The system is based on the idea that landlords must not be allowed to profit from renters. Landlords are only allowed to pass on costs, property taxes excepted, incurred in the day-to-day operation of the property, and a prescribed charge to cover maintenance costs. They can also pass on a capital charge, which can vary between 7% and 14%, with properties built after 1963 getting higher amounts. However the capital charge is calculated on the basis of the value of the house in 1973 – with no allowance for inflation.

Properties of less than seven dwellings are covered by different rules relating to the “value of the rented property,” but the result is much the same. If the Rent Tribunal fails, cases can go to a special division of the Country Courts called the Housing Courts (boligretter).

A demand for a rent increase by a landlord must be made in writing sent three months prior to the date of effectivity. The notice has to state the reasons for increase and remind the tenant that he/she may raise an objection to the notice. The increased rent should not significantly exceed similar rents.
France The initial rent can be freely agreed between the owner and the renter. However, the rent can be revised only once a year, and only if a clause in the contract (carefully drafted) specifies it. The increase cannot be above the increase of the four-quarterly average of the INSEE index of construction costs. Index clauses and periodic clauses must comply with this.
Hungary The law differentiates between two types of rental agreements – free and controlled (“obligatory rent”).

In cases which fall in the “obligatory rent” sector, for example residences owned by the municipality or the state, the rent is stipulated by law. The tenancy contract may be signed without even mentioning the rent. The rent shall be notified in writing by the Landlord (i.e. the municipality or state) to the Tenant within 8 days of moving in. If the Tenant does not object to the notified rent in writing within 8 days of delivery, the notified rent will become the actual rent. If no agreement is reached on the rent, both contracting parties may go to court to determine it. If the Landlord has notified the Tenant of a higher rent than provided by law, the court will order him to repay the difference. An increase or reduction in the rent can also be modified by law, or by the court.
Italy Rents may initially be freely negotiated, but may not be increased after the initial 4-year contract by more than 75% of the cost of living.
Luxembourg Rentals are regulated. Dwellings built or substantially renovated after 10 September 1944 cannot produce for the landlord more than a 5% return on the capital invested in the building.

The ‘capital invested’ is the amount spent on the physical construction, valued either at time of construction, or re-valued at the date of entry into effect of the law. Those who cannot document their cost of construction must accept the opinion of the Commission on Rented Apartments. The landlord can propose to the tenant to use the acquisition price, but if the tenant objects, the view of Commission on Rented Apartments will prevail. If the construction took place more than twenty years ago, the value invested capital is deemed reduced by 10%. Rentals thus fixed may only be altered every three years.

The rent of furnished apartments cannot be more than double the previous rates.

Pre-1944 dwellings of more than 9 sq. m. may not be rented for more than 600 francs if they are ‘sans confort’; 1,000 francs if they are ‘avec confort’; and 1,500 francs if they are ‘avec confort moderne’. The rentals of smaller dwellings are proportionately reduced.

These limits do not apply to independent houses, villas, and apartments occupied by one single household with at least 7 rooms and ‘confort moderne’.
Netherlands The rent paid can be freely agreed between landlord and tenant, for properties above the ‘liberalization rent limit’ of 604.72 per month. Properties below this limit are subject to rent control under the Residential Tenancies (Rent) Act 1979, by which according to a ‘residential accommodation points system (points matrix), features such as floor area, position, quality, and facilities earn points. A maximum rent is chargeable for a total number of points. Rent tribunals oversee situations of rent disputes, and have the power to reduce rents.

The Minister Vogelaar for Housing, Communities and Integration (WWI) sets the maximum percentage of increase. The maximum allowable rent increase from July 1, 2007 to June 30, 2008 is 1.1%, equivalent to the inflation in 2006.
Norway Dwellings in old pre-war housing with 4 or more units in Central Oslo have low, regulated rents, but this regulation will be removed by 2010.
Portugal The amount of the rent can usually be freely agreed between the parties, with the exception of low cost housing (“conditioned rent” and “supported rent”).

Rent reviews can also be freely agreed (although they must take place annually), and, with careful drafting, cost-of-living rent increases and suchlike can be agreed (although in some types of non-residential lease such freedom depends on the existence of a first term of five years for the lease). If no specific agreement exists, the rent may be adjusted by the landlord annually according to scales periodically established by law.
Spain The contracting parties can update rent on a yearly basis during the first five years of the contract only according to the variations of the Consumer Price Index (Indice de Precios al Consumo, IPC). Once this period of time has elapsed, the contract can be renewed at a new rent, which must not be more that 20% higher than the current rent.

If the landlord makes improvements, he is entitled to increase the annual rent on the basis of the legal interest rate, incremented by three points, applied to the total investment, less any public subsidies. But the rent increase cannot exceed 20% of the rent.
Sweden Rents in all dwellings must match rents for alternative, comparable dwellings, based on size and ‘attractiveness’, primarily rents in low-rent municipal houses. The system is enforced by Rent Tribunals. The rules apply to all rented dwelling units, with few exceptions.

The rules are mandatory - if the tenant waives his rights, this must be approved by either the Rent Tribunal, or form part of a collective contract agreed between landlord and the Swedish Union of Tenants.

The landlord is required to notify the tenant if he proposes to increase the rent. If the tenant agrees, or is passive for more than two months, the new rent will be applied. But a tenant has the right to reject any rental increase, and the landlord has to appeal to the Rent Tribunal for the increase to take effect. Index clauses and progressive rent increase clauses are invalid.
Switzerland The initial rent amount of rent can be freely agreed between the landlord and tenant. However, within 30 days after the takeover of the rented property the tenant can appeal against the rent as abusive, if he was forced into agreeing to the rent due to serious personal or familial difficulties, due to the conditions of the local residential property and business premises market, or if the new initial rent is significantly higher for the same rented property than the old rent. This happens very rarely, because the judge is supposed to intervene only in extremis.

For a tenancy which has been arranged for an indefinite period, several formal prerequisites have to be met by the landlord in order for a rent increase to be permitted. Besides these formalities, there are only a few legally admissible reasons for increasing the rent. It is easier to increase the rent in case of a fixed term contract which has come to an end, but still, if the new rent is significantly higher than the old rent, it runs the risk of being seen as abusive.

A progressive rent clause is possible, but only for tenancies that have been signed for a minimum of five years. The rent amount must then be adjusted in line with the Swiss Consumer Price Index. If the rental agreement is fixed for at least three years rents can also be agreed to increase annually by a fixed formula.
Source: Global Property Guide, Contributing Law Firms

RENT CONTROL IN NORTH AMERICA AND LATIN AMERICA

COUNTRY KEY PROVISIONS
Canada Rent increases are regulated in four provinces, the maximum allowable increase being determined annually.
British Columbia The maximum allowable rent increase set by the Residential Tenancy Office in 2008 is 3.7% (based on provincial inflation plus 2%).
Manitoba In Manitoba, rent increases are indexed to inflation plus an economic adjustment factor. For 2008, rent in Manitoba can be increased by 2.5%, according to the Residential Tenancies Branch.
Ontario In Ontario, the Landlord and Tenant Board authorities have fixed the maximum allowable rent increase to 2.1% for 2008. Rent increases are based on the province’s inflation.
Prince Edward Is. Rent increases are tied to the property, not the tenant. The Office of the Director of Residential Rental Property sets the allowable rent increase annually. For 2008, only 1% rent increase is allowed. Additional increases must be approved by the respective rental authority.
Colombia Lease agreements can be made orally or in writing and rents can be set freely by agreement between landlord and tenant, though the monthly rent cannot exceed 1% of the commercial value of the dwelling or of the part of the dwelling subject to the lease. Such commercial value cannot exceed two times the cadastre value of the dwelling at the time of the contract.

There can be increases in the rent every 12 months of execution of the lease agreement. The increase cannot exceed 100% of the Consumer Price Index for the immediately preceding calendar year. In any case, the new rent has to conform to the parameters set forth above as to the limits of the initial rent.

If the tenant believes that the increase made by the landlord exceeds market prices, he has 6 months to request a revision before the Mayor’s Office of the city where the dwelling is located.
Costa Rica For housing purposes, the annual rent increase cannot be higher than 15%. To increase rent by more than a 15%, the inflation rate must be higher than 15%, and the rent increase must be based on a certification of the inflation rate issued by the State. To increase the rent, parties should agree upon the amount of increase a yearly basis. If there is no agreement, a claim can be filled by the landlord to increase the rent on a yearly basis.
Ecuador The Registry of Rents in each city sets maximum chargeable rents, determined by calculating the twelfth part of 10% of the commercial cost of each property, which is set by each city council.

Normally, rents agreed by contract cannot be increased until the end of the contractual term. However, the landlord may request an increase in the rent, before the Registry of Rents, when the property has gone through improvement works, or when two years have gone by since the last time rent was agreed between the parties. The law does not allow for any increase in the rents due to increases in cost of living.
Honduras According to the Tenancy Law, if the Value of the leased property is below US$2,000, the Administrative Department of Lease Issues has certain rules and procedures for the regulation of rents.
Panama In general, lease agreements can freely incorporate increases in the rent every certain amount of years, as agreed between the parties. Nevertheless rents equal or lower than US$150 per month, which are regulated by Law No. 93 of October 4, 1973, can only be increased with prior a written authorization of the Ministry of Housing, which will issue its approval depending on the fairness of the sums charged to the tenant and the reasonableness of the return on the landlord’s investment.
Uruguay Rent increases fall under two different regimes: (i) Lease agreements regulated by Decree-Law 14.219 (DL), where rent increases are governed by an index set by the Statistics and Census National Division ( "Instituto Nacional de Estadisticas y Censos"), the so-called Readjustable Rent Unit ("Unidad Reajustable de Alquileres") ("RRU"). During the first year of DL contracts, rents cannot be increased. After the first year, the rent is multiplied by the change in the RRU.

(ii) Lease agreements regulated mainly by the Civil Code rules and by Law 8.153 of December 16, 1927 ("Free Contracting") where rent increases may be freely set by the landlord and tenant by mutual agreement, without restrictions.
US
California In San Francisco, California, the San Francisco Rent Board limits the allowable annual rent increase. If the landlord adjusts rents between March 1, 2008 and February 28, 2009, the Allowable Rent Increase is 2%, higher than the 1.5% allowable increase from March 2007 to February 2008. Under the law, the allowable rent increase should not exceed 7% annually.
Washington D.C. The Rent Stabilization Program (Occupancy and Rent Guidelines) prescribes maximum allowable rents and rent increases. For most units, the allowable annual rent increase is CPI plus 2 percentage points, but not more than 10%. For elderly and disabled tenants, maximum rent increase is equal to the CPI but not more than 5%. If the unit is vacated, the rent can be increased by a maximum of 10%.

A landlord in Washington D.C. can also ask for a Hardship Petition which allows the landlord to increase the rent to a level that allows 12% rate of return. There are other measures in place to provide incentives for the construction and maintenance of rental units.
New Jersey Local governments in New Jersey, such as Jersey City and Camden, impose maximum rent increases. For Jersey City, the annual maximum allowable increase is 4% or the Consumer Price Index (CPI-W), whichever is less. A hardship Rental Increase is also allowed to give landlords a fair return on their investments. Fair return is defined as 6 percentage points above the savings interest rate. In Camden, the annual allowable increase is the CPI or 6%, whichever is less.
New York For the state of New York, rent control applies to building constructed before February 1947 in 51 municipalities including New York City. Generally, the amount of tenants under rent control is getting smaller each year. Rent stabilization, on the other hand, applies to apartments with a monthly rent of less than $2,000. As an example, the allowable rent increase for rent stabilized apartments in New York City is 2.75% for leases lasting for one year with heating provided by the landlord. Landlords can also apply for Comparative Hardship or Alternative Hardship where they can be allowed to increase rents up to 6% annually.
Source: Global Property Guide, Contributing Law Firms

RENT CONTROL IN THE MIDDLE EAST

COUNTRY KEY PROVISIONS
Egypt It is practically impossible to obtain rent increases in tenancies governed by the old socialist laws Law No. 49/1977, Law No. 136/1981 or any earlier legislation. These laws apply to contracts entered into before the reforms in 1996 including contracts assigned to household members of the original tenant. When Law No. 49/1977 applies, an increase of rent depends on a re-assessment of the official administrative value of the property which will only take place in special circumstances, for example, in the event of an increase in the height of the building or the addition of a new building.
Qatar Rents are frozen at their current level with the new Lease Law (no. 4 of 2008) while the government is determining the new rent increase cap. From Feb 2006 to Feb 2008, rent increases were limited to 10% annually under law No. 4 of 2006 which was replaced by the new Lease Law.
Syria Rents may be freely agreed freely between landlord and tenant, except in the case of contracts entered into before the coming into force of Law No. 6 of 2001, and which remain occupied either by the original tenant or by his household members. The annual rent is fixed by law at 5% of the market value of the real estate, if the purpose of the rental agreement is residential, and 7% if it is commercial. Rents payable under contracts governed by the old laws may only be increased by securing a reassessment of the market value of the real estate. The landlord is required to file a case with the local reconciliation court which will appoint a real estate expert to assess the market value of the real estate. The rent will then be adjusted by applying the 5% (or 7%) rate to the ascertained market value of the real estate.
Tunisia For contracts governed by Law No 76-35 of February 18, which grants security of tenure, the initial rent can be freely agreed between the owner and the tenant, but rents are automatically subject to an annual increase of 5%.
UAE In Dubai, annual rent increase permitted in 2008 is 5%. Abu Dhabi likewise set the rent cap for 2008 at 5%.
Source: Global Property Guide, Contributing Law Firms

References:
Arnott, Richard, 1995. "Time for Revisionism on Rent Control?," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 99-120, Winter.

Arnott, Richard, 1997. "Rent Control," Boston College Working Papers in Economics 391., Boston College Department of Economics.

Ballesteros, Marife Magno, 2001. "Benefits (and Losses) From Rent Control in the Philippines: An Empirical Study of Metro Manila," Discussion Papers DP 2001-23, Philippine Institute for Development Studies.

Basu, Kaushik & Emerson, Patrick, 1998. "The economic and law of rent control," Policy Research Working Paper Series 1968, The World Bank.

Hans Lind, 2001. "Rent Regulation: A Conceptual And Comparative Analysis," European Journal of Housing Policy, Taylor and Francis Journals, vol. 1(1), pages 41-57, April.

Rent Control: Academic Analysis and Public Sentiment.” Swedish Economic Policy Review 10 (2003) 61-81.

Jensen, Ulf, 2004. “Sweden” in Tenancy Law and Procedure in the European Union. European University Institute.

Malpezzi, S. & Ball, G., 1992. "Rent Control in Developing Countries," World Bank - Discussion Papers 129, World Bank.

Comments


Be the first to comment on this article!



Login or Register to submit a comment!

In order to promote open and spam-free conversations, Global Property Guide moderates commetns on all articles. You can expect that your comment will be published within 24 hours.

Cityscape Global

Investment Analysis
Free Newsletter

Fortnightly updates from the global property arena directly to your inbox.


Email Address:







PROPERTY RECOMMENDATIONS

 
Download free Global Property Guide reports

Our Newsletter

 
Fortnightly updates from the global property arena directly to your inbox.

Manage subscriptions
Chinese property buyers and Asian buyers, there is great property for high net worth Chinese buyers on Juwai.com

Which parts of the world are most attractive for property investment today?

Click here to download our FREE Property Recommendations Reports!

Close Me