Rental freeze set to squeeze BHC revenues

MBONGENI MGUNI
Staff Writer | Friday November 26, 2010 00:00

 

Rentals across the BHC's 10, 300-strong portfolio of properties were last increased in 2005 while in the interim, the Corporation has struggled with higher inflation and materials' supply costs, which have contributed to steep maintenance charges for the rental properties. Other overheads such as labour costs and fuel have also climbed over the years, while rental rates have remained stagnant.

The rentals also remained flat during the global recession, which wrecked havoc on the costs and availability of various inputs.

Lands and Housing Minister, Nonofo Molefhi recently hinted that the rental freeze would prevail over the BHC.

According to the BHC Act, the Corporation applies to the Minister for a rental increase, who then consults with Cabinet before approving or rejecting the application.

'Government has frozen that and there's no application for a rental increase at the moment,' Molefhi said in an interview recently.

It is understood government's reluctance to increase rentals is linked to the need to insulate Batswana from higher living costs, particularly as civil servants have not had a wage review since 2008.

This week, it emerged that the Corporation has made several applications to government over the years with no success. The stagnant prices are, however, putting a squeeze on the Corporation's ability to deliver on its housing mandate, while complying with the statutory requirement to operate as a going concern.

'Some of the rentals have been overtaken by inflation and market considerations. Almost half of our houses are old and require costly maintenance,' BHC officials said.

'However, the rentals still range from P500 to P2, 500, while the maintenance costs in a month are way above this.'

Coupled with the default and arrears rate, the rental freeze has made it harder for the BHC to derive value from its rental portfolio. Defaults and arrears climbed last year, as the recession ate into incomes and industrial stability.

The gap between prevailing and potential BHC rentals, analysts said, can be seen in the going rates for illegal sub-letting of the Corporation's properties. High cost BHC properties are being illegally sub-let for up to P6, 000, while low cost properties are generally above the P3, 000 mark. Town houses have become especially costly in sub-letting, as they are the preferred residence of the growing urban, young middle-class.

BHC tenants said the Corporation had resorted to conducting raids on its properties to stamp out sub-letting which amounts to exploitation of the low rental regime, while sublet-ees are not bound by and often violate the terms of the lease agreement.

'BHC officials have been hanging around the flats, communicating with some residents and asking them to be their eyes and ears as to the goings-on in some flats. Whenever they suspect that tenants are sub-letting, they pounce and these operations have been conducted in several properties this year,' said Terrence Mathe, a BHC leaseholder.

'It appears the Corporation has even roped in caretakers to observe and report suspicious activities, with a view to booting out tenants who sub-let their properties.'

BHC Public and Corporate Affairs Manager, Mookodi Seisa said the Corporation clamps down on sub-letting during lease renewals.

'When we renew our leases, that's when we check whether the person who signs [the lease] is the one staying in the house. The lease states that only the tenant should stay in the house: lease renewals are therefore a way of addressing this issue of people taking advantage of the rental freeze to sub-let. We also hold regular tenant meetings to explain how the leases work and the tenants' obligations,' he said.

Seisa confirmed that the BHC's applications for rental increases had been rejected over the years. 'Government is the sole shareholder in the BHC and it authorises any increases in rentals. These have not been increased, but I cannot state off-hand when the last application we made was.'

The rental freeze prompted the BHC, three years ago, to suggest greater autonomy with which it could raise rentals and acquire loans from financial institutions without government approval.