Sky-high rents squeeze tenants

Creative thinking could be the key to surviving an increasingly expensive property leasing market. By rethinking the way their family lives, two years ago Sandra and her husband Will (not their real names) saved money by leasing two neighbouring flats and keeping the doors open during the day.

So when they received notice that neither lease would be renewed (the landlords wanted to sell), they flexed their creative muscles again and struck a new deal with the landlords.

By successfully negotiating a small rental increase in exchange for paying upfront for two more months, the couple has bought some time to understand the market better.

'It's a gamble, we know,' Sandra said. 'Rents could continue to increase. We hear so much bad news from countries outside of Hong Kong we can't help thinking that the good times here can't last. And if they don't sell, perhaps the landlords will let us stay on.'

Leasing a flat in Hong Kong may be easy, but these days it is not painless.

'Most renters are being squeezed out. There is very little one can do to keep the rent from moving as there is just so much demand,' said Edina Wong, senior director, residential leasing department, Savills Hong Kong.

'Over the past two years residential property leasing has gone up around 30 per cent,' said Karen Wong Law Kwai-wah, president of the Society of Hong Kong Real Estate Agents. 'Our salaries have not increased by 30 per cent.

But there are some steps we can take to address the issue. Edina Wong said tenants should always try to negotiate, but she admitted that the chances of getting a flexible response in the market now were minimal.

Here is some advice for negotiating a new lease during tough times from those who deal with residential leasing every day.

As a renter, one should request a break point in the lease for the tenant only, rather than one which can be exercised by both the tenant and the landlord. If you don't like the idea of being locked in for two years, rest assured that your landlord, in these days of rising property prices, doesn't either. In the past, it's been normal for renters to insert a break clause for flexibility in case their circumstances changed.

Nowadays, the 'one year plus one year' clause is commonly requested from both sides, according to Karen Wong, and either the landlord or the tenant can give notice to break tenancy.

'With these market conditions, if you have a break point, which is for both sides, the landlord will exercise it to increase the rent,' Edina Wong warned.

A dual break clause leaves little in the way of security for a renter in a rising market.

'Even if you sign for two years, the break clause can be exercised 12 months after commencement. Either party can serve one or two months' notice and then quit. Even if you sign for two years you may not have two years' tenure,' she said.

See if you can add an 'option to renew' clause. 'The legislation states that the lease ends on the last day. The landlord has the right to tell the tenant to move. With an 'option to renew', at least the renter can take up the option. Of course, renewal terms and rents will still have to be negotiated,' Edina Wong explained.

Ensure that the landlord looks after the repairs related to the structural part of the premises, and appliances and air-cons provided. You might think this is standard, but it is not. 'Hong Kong tenancy is very one-sided,' the director at Savills warned. Carefully vet your lease agreement to ensure that this clause is there. You could avoid costly repairs down the road.

Offer to take the flat in an 'as is' condition. 'The market situation is the opposite of Sars. In order to keep the monthly rent down ... keep renovation requests to a minimum, as the landlords will just factor the expenses into the rent. This is really a tough time for renters,' Edina Wong said.

Watch out for the sales and redevelopment clause. If there must be one, make sure that you have a minimum period secured. The standard is six months' notice. 'We always try to delete this. However, most times the landlord will not agree,' Ms Wong of Savills said. In the absence of the clause, even if the landlord wants to sell or redevelop, the tenant can stay until the end of the tenancy agreement.

Try to negotiate for an inclusive price. Increasingly, rents are being offered exclusive of government rates, taxes and management fees. Even when it is not exclusive, the landlord may ask to review the management fee on a half-yearly basis or whenever there is an increase. 'Nowadays, it is a landlord's market, they can insist on doing this because there is a shortage of supply in the market,' Karen Wong said. Once you sign on the dotted line, plan ahead. Experts agree if you have a good relationship with the landlord, and he or she isn't intending to sell with vacant possession, there are a few ideas for renegotiation you might try.

Appeal to your trustworthiness and the landlord's transitional cost savings. If the landlord was an investor, the point was to always have money coming in, said Karen Wong, and they were more likely to want to do business with a tenant they could trust - one who pays regularly and punctually.

The alternative is that if the landlord lets you go, he or she will likely need to repaint the walls, re-sand the floor, make minor renovations, and then put it back on the market. That means added investment and a vacant period when no money is coming in. There are also additional agency commissions to consider. From a landlord's perspective, there's something to be said for security, or perhaps it's a case of 'better the devil you know'. A ray of sunshine in an otherwise bleak outlook for renters, Karen Wong said, was an investor, who wanted to continue leasing his flat, would keep his good tenant, even if it meant a lower than market rental.

Single men and childless couples have an advantage when it comes to negotiating. 'If the new tenant has children they may make a noise and dirty the walls. The landlord doesn't want to have this hassle,' Karen Wong said.

Try to avoid endless rental increases by negotiating for a longer lease. That is, for two years plus two years, or two years plus one year.

And, request a cap on the rental price increase. 'Ask your landlord to cap not more than 15 or 20 per cent. I think landlords are clever enough to say fine,' Karen Wong said, as a sort of trade off for a no vacancy period. Yet, she added a crucial caveat. 'In a rising market it's not too easy to do it that way, unless you are a good tenant.' The rest of us will have to just grin and bear it.