# When rental increase is 5 percent every year. Who is happy?

I wrote this article one week ago. Rental increase of not more than 5% okay? I think some may still think that they can easily pay the extra 5% every year lah. Their increment of 5% per year is more than the rental lah. By the way, they are right. Take a look at a simple calculation yeah. Rental increase will always be smaller than the salary increment in terms of amount.

## When rental and increments are both increasing at 5 percent per year

Salary of RM3,500. Renting a room with 20% of pay would be RM700. So increment of 5% means RM3,500 x 5% = RM175 extra per month. Rental of RM700 x 5% = RM35 only!! RM175 minus RM35 = RM140. See, the person is still okay because the increment is proven to be higher than the increase in rental when rental is LIMITED to just 5% per year.

## Any laws in Malaysia saying rental can only increase by 5% every year?

That’s precisely the issue here yeah. There are no such laws in Malaysia where the rental increase cannot be more than 5%. Also… if I am the owner and my rental is RM700 per month, I will usually increase by RM50 lah… not RM35. So, if a typical homeowner increases the rental by RM50 from RM700, that is 7 percent yeah.

## Just now was a RM700 room. What if it’s a RM1,600 apartment?

To rent a RM1,600 apartment, hopefully this person is earning RM8,000 per month… 20% of salary for rental. Else, if this person is only earning RM5,000 and renting at RM1,600 then he would be spending 32% of his pay just for rental. Quite a big number really.

RM1,600 x 5% increase per year is just RM80 per year. Oh… so little. Anyway, most probably the homeowner would ask for RM100 increase instead lah.

Meanwhile a salary of RM8,000 x 5% = RM400. Wow. RM400 increment and just need pay RM100 for the rental. Good deal lah. The person still have an extra RM300 to spend every month.

Meanwhile a salary of RM5,000 x 5% = RM250. Erm… RM250 minus RM100 rental = extra RM150 per month. That’s just RM5 per day extra. Not such a good deal yeah. Better not rent the apartment lah, maybe switch to just a room?

## There are NO laws that salary increment must be 5% yeah

In Malaysia, we do NOT have laws to say that rental must NOT increase more than 5%. That’s true. We also do NOT have any laws to tell all employers to pay a MINIMUM increment of 5% per year yeah. So, the employer may give a higher increment than 5% to everyone (and everyone is happy) or the employer could choose to give lower than 5% or give none because the business was ‘not good’ as well.

What happens next? The employee could then decide to cut his own salary since his rental increased but his salary did not. It means that for that year, his standard of living has dropped because he has less to pay for other things. Alternatively, the employee could just choose to change jobs for a higher pay instead. Both options are up to the employee.

Happy deciding yeah. There are no laws to compel the homeowner not to increase the rental by an amount she likes. There are also no laws to force the employer to pay an increment higher than 5% every year too. Just do our best to get as high increment as possible and at the same time to keep moving for a lower rental every year if the homeowner decides to increase the rental every year.

Sign up for KopiWeekly. (only once per week of property, finance, investment news and more)

Next suggested article: Buying and renting is a good long term strategy

##### Subscribe to Blog via Email

Few seconds to subscribe for FREE and get property investment tips, latest financial and property news and more.

Join 1,940 other subscribers.
##### Charles Tan

Charles is Founder of kopiandproperty.com He writes from his investment experience for the the past 20 years in investments including property, stock, unit trust and more as well as readings and conversations with many property gurus in the industry. kopiandproperty.com is an independent property blog which is not affiliated to any media company, property developer or even real estate agencies.