Q: Rental Negotiation Vs Inflation

[Girino]

We have been browsing fora place since we arrived here 10 days ago. We found a nice place in San Isidro Centro for ARS5900/month + exp. We made a written proposal this morning for ARS5800 + exp, with a 25% adjustment for the second year (ARS7520) and gave a ARS3000 deposit.

The real estate agency called back later today to inform us that the owner is now requesting a 15% raise every 6 months to keep up with the skyrocketing inflation rate, instead of a yearly +25% as per their initial request.

We are feeling we are being exploited because we make our income from abroad (we had to explain this because we don't have yet a demonstrable income in Argentina) and we earn dollars/euros.
Is this the norm or is our feeling correct? We didn't come here to be milked off, but to lead a better life compared to where we come from.

Should we assume that the exchange rate will be varying accordingly?

 

[ElQueso]

I haven't heard of people going to 6 month increases in the inflation rate in contracts. I just signed a new 2 year contract, in a new (to me) apartment, about two months ago, after looking for about 3 months (so since the first of the year). I suppose it's possible that it's something that just started, but I didn't encounter that once while I was looking.

In fact, I encountered more 20% increases, as has been the case in the last 6 years, than I did at 25%, although there were more than a few 25% requests to be sure.

If they had originally presented the deal as 25% per year, I'd tell them to go take a hike with the new rate. I can't believe the place you found is so unique that you can't find another like it and I'm betting that they're going to end up having a harder time renting it with that kind of a deal than you will finding another place.

I still feel 25% is high - hell, I didn't even like 20%. It's a self-fulfilling prophecy that helps create more inflation. And the big problem is that if you have a long term lease and want to actually live there 4 or 6 years, it becomes ridiculously expensive over time. My last apartment had gotten so high I had to go find another apartment just because of that. I can guarantee the owner isn't going to rent it for what he was trying to get out of me because it's much more a renter's market now. Entering into a new contract, now, is cheaper than extending an existing one of 4 years given similar neighborhood, size, offerings, etc., in my recent experience. And I think that's because rental rates reflect a certain percentage of the value of the apartment and real estate prices don't go up as fast as rental prices. Too many Argentinos nowadays are using rental income on one or two apartments as a big chunk of their income and they are thinking of it in terms of producing income instead of an investment that also produces a modest income addition, not a big chunk. Hell, many don't re-invest nearly enough of their rental income now into making improvements during or after a tenant.

Don't go for it, in my opinion.

 

[internationalguy]

Honestly it doesn't seem unreasonable, the inflation has been rampant these past few months. two 15% raises are 30% vs 25% isn't that big a deal, although there's a difference because X(1.15)+Xa(1.15) > X (1.3). However you can argue that the original terms had been agreed upon and propose two 12.5% raises instead of one raise at the end of the year.

 

[Girino]

two 15% raises are 30% vs 25% isn't that big a deal

It's 4 raises over 2 years (a 15% raise per semester). And you can't sum percentage this way.
You should do the math over the 24 months period.
Initial request: ARS5800 * 12 + ARS5800 * 1.25 * 12 = ARS156,600
New request: ARS5800 * 6 + ARS5800 * 1.15 * 6 + ARS5800 * 1.15 * 1.15 * 6 + ARS5800 * 1.15 * 1.15 * 1.15 * 6 = ARS 173,769,45

I am okay with adjusting the rent according to inflation, but I don't like taking a blind bet. What if the exchange rate won't keep up with the inflation? I'd say "let's adjust it according the inflation" and not according your guts' feeling.

 

[BsAsFan]

http://www.lanacion.com.ar/1668427-por-la-inflacion-los-alquileres-tienen-ajustes-semestrales

Here is an article from La Nacion in March where it talks about rental contracts including 6 month adjustments of as high as 15 percent. Looks like this could becoming more common but it sounds like its on the high side. Perhaps you negotiate 12 percent every 6 months instead of the 15?

 

[Napoleon]

Inflation this year will probably be 30%, especially since so many police forces got 40%+ increases after going on strike.

And yes, compounded interest means that two 15% > one 30% increase. Obvio.

 

[BsAsFan]

It's 4 raises over 2 years (a 15% raise per semester). And you can't sum percentage this way.
You should do the math over the 24 months period.
Initial request: ARS5800 * 12 + ARS5800 * 1.25 * 12 = ARS156,600
New request: ARS5800 * 6 + ARS5800 * 1.15 * 6 + ARS5800 * 1.15 * 1.15 * 6 + ARS5800 * 1.15 * 1.15 * 1.15 * 6 = ARS 173,769,45

I am okay with adjusting the rent according to inflation, but I don't like taking a blind bet. What if the exchange rate won't keep up with the inflation? I'd say "let's adjust it according the inflation" and not according your guts' feeling.

I think the issue is that rental contracts can't actually legally be indexed to inflation so they have to put an actual peso amount for each period within the contract if they want to protect against inflation. This of course could go either way, but likely in favor of the tenant when setting the increases at one year increments if inflation keeps increasing as it has for the past several years. I totally agree it feels like you're being taken advantage of but It doesnt sound to me as though they are trying to pull a fast one -- just trying to cover for the inevitable increase in inflation which of course only helps contribute to more inflation.

 

[internationalguy]

It's 4 raises over 2 years (a 15% raise per semester). And you can't sum percentage this way.
You should do the math over the 24 months period.
Initial request: ARS5800 * 12 + ARS5800 * 1.25 * 12 = ARS156,600
New request: ARS5800 * 6 + ARS5800 * 1.15 * 6 + ARS5800 * 1.15 * 1.15 * 6 + ARS5800 * 1.15 * 1.15 * 1.15 * 6 = ARS 173,769,45

I am okay with adjusting the rent according to inflation, but I don't like taking a blind bet. What if the exchange rate won't keep up with the inflation? I'd say "let's adjust it according the inflation" and not according your guts' feeling.

I actually included a little formula thingy to say that same thing. Why do people keep quoting my posts incomplete.

 

[Napoleon]

Well done chap.

(Of course I didn't look at it the first time.)

 

[estebandepraga]

In my humble opinion of having been involved in rentals here since 1982 when I bought my first place in BA as a young man, feel lucky you are not being charged in USD which is what I would do if I were renting out a place now depsite it being "not legal" (as if most things are here!) I truly believe that s... will hit the fan and the pesos will be less than toilet paper. I have lived through the peso, peso ley, peso argentino, austral, peso=U$D, and now this! If one signed a lease in 2012, 2 years ago,the USD was 4pesos and a bit now it's at 11 and got as high as 13 this year that means a flat rented for 2000pesos in 2012 was $500usd and in feb 2014 it was at $153USD! OK have the annual inflation clauses but it still would be about a 50% loss to the landlord!
What is ridiculous here is the fact that the tenant must pay expensas and ABL and the infamous "garantia" you have to be rich to rent these days! this doesnt exists in other countries where I have lived and I have lived in USA, Czech Republic, Brazil(where they have the garantia) and here!
While I realize that many landlords take advantage of a foreign renter and feel all have $ and euro accounts bursting with money and that is not the case for most, I also would not want to see my "bought with blood, sweat and tears" rental property to almost give me no profit.
What many landlords forget is that a good tenant who pays on time and takes care of the property is worth than a few extras bucks or pesos!
Good luck
Esteban