Saturday, July 22, 2017

Lump sum rent a growing problem for tenants

As rents in the commercial capital rise, the longstanding arrangement of paying six months’ or even a year’s rent upfront is increasingly a burden to Yangon’s residential and business tenants.

Booming property prices have pushed up the rent in Yangon. Photo: EPABooming property prices have pushed up the rent in Yangon. Photo: EPA

U Soe Win Maung, who lives with his wife in a rented apartment on 40th street in Kyauktada township, said he cannot afford the one-time payment required to rent an apartment.

“The worst is cashing down rental fees for at least six months,” he said, “We settled down in Yangon five years ago and have been renting an apartment since then. When the rent started rising, we could no longer afford that.”

U Soe Win Maung runs a Shan noodle shop along the road for a living and has to rent a home. For the couple, an advanced rental payment of six months is very financially challenging. They reside at the loft of the third floor of an old, three-story building. The monthly rent is K160,000, and a payment of six months of rent comes up to K960,000.

“If we could pay our rent on a monthly basis, it would be fine for us. Currently, we can’t afford to pay [the lump sum], so we have to share the apartment with another family. We don’t want to share our apartment but there is no choice,” he said.

The booming property prices have pushed up the rent in Yangon. Putting down in lump sum payments of six months or one year is becoming increasingly difficult for city dwellers, said U Soe Win Maung.

U Soe Win Maung would not need to share his residence if rental payments were more flexible. The rigid rental arrangement risks squeezing out those in the low and middle income groups. For others, it presents a different dilemma.

Ko Phone Kyaw, who is a white-collar employee, said paying lump sum rent upfront upon signing the lease does not do the tenants justice.

“When we rent an apartment, we cannot know immediately if the area is suitable for us by mere inspection. Hence we need to stay for around a month or two [before coming to a decision], and if it isn’t, we can relocate”, he said. But, under the current system, renters lose what has been paid if they decide to move out earlier.

Ko Phone Kyaw, who receives his salary monthly, added that the one-time arrangement has placed financial pressure on employees in general. And it is not only the employees who are affected, as the system also represents a major challenge for small and medium enterprises (SMEs) and entrepreneurs alike.

“When I started a travel agency as an entrepreneur back in 2014, I got into trouble when renting office space. Here [in Yangon] it is very expensive to rent an apartment as an office and also to pay the rent in a lump sum. Seventy percent of the investment in my business went to rental expenditure when we submitted our lump sum of 12 months of rent in advance,” Ko Phone Kyaw told The Myanmar Times.

Shopkeepers are confronted with a similar challenge. The system adds to the difficulty of running a business, said Ko Pouk Si, owner of a restaurant on Bogyoke Aung San road in Kyauktada township.

“My restaurant is located on the ground floor and the rate [for rent] is K1 million per month, but we need to pay 12 months all in one go in advance.

“So the owners are asking for an extra K11 million in the next year [for the remaining 11 months ahead]. We cannot go on running the restaurant with this [rental] rate and system,” he complained.

The Urban Rent Control Act in 1960 states that the landlord is allowed to demand one month’s deposit, but not more than one month. The act aims to regulate the rental market and, in theory, tilts the balance of power away from landlords toward tenants. If the government could enforce the Act effectively, they should be able to deal with the problems the tenants are currently facing, said U Tin Than Oo, a legal and business consultant. The current arrangements, therefore, is technically illegal.

“A long time ago, before independence [from the UK], the then-Rangoon Municipal Committee had a committee to supervise the rental market and deal with rental issues with the Urban Rent Control Act. But later [after independence], there was no supervising body and they [the administration] are not effective in implementing the Act. That is why people are facing these types of problems nowadays,” he explained.

The situation might change with the upcoming Real Estate Service Law, said Daw Moh Moh Aung, secretary of Myanmar Real Estate Services Association (MRESA), which would like to see the property sector properly regulated. The new rules and regulations would deal with the lump sum payment scheme so prevalent in the city’s rental economy.

“First, we need an effective law for the real estate sector. At present, we don’t have an existing law [to oversee the industry] and so there are a lot of problems. And we need to be in a healthy economy because this situation [of paying rent in a lump sum] … is totally dependent on the businesses. Good economy and a sound legal framework, [and then] no one will be plagued by those impacts,” she said.

The Commission for the Assessment of Legal Affairs and Special Issues, chaired by former Speaker Thura U Shwe Mann, is in the process of drafting the Real Estate Service Law. Given the time-consuming parliamentary procedures, disgruntled tenants in Yangon will have to continue to stomach lump sum payments for a little longer.