Fall of the IGP-M can avoid rent increase – 05/09/2023 – Market

Known as “rent inflation”, the IGP-M (General Price Index – Market) reached its first negative mark since February 2018 in April: -2.17% in the accumulated 12 months. This may be the readjustment percentage on contracts that expire this month.

The IGP-M is used as a basis for readjusting most rental contracts and has skyrocketed during the pandemic. With deflation, the contracts that celebrate their anniversary in May, corrected by the index, may remain unchanged. But no discount either. Due to a routine clause, the price is not adjusted downwards in case of a negative index.

It is common for the parties to determine a period of 12 months for updating the rent. As the tenancy law does not define which index of correction should be used, landlord and tenant with contracts expiring this month can reach an agreement on which index to adopt to make the readjustment.

According to Larissa Gonçalves, an economist at DataZAP+, in the pandemic, the IPCA (National Index of Broad Consumer Prices) was chosen because it is less sensitive to exchange rate volatility, guaranteeing at least the adjustment of inflation for landlords.

“At this moment specifically, it is unlikely, especially for property owners who have not readjusted prices during the pandemic years, that the index will be switched to the IGP-M, since the latter is negative”, says Larissa.

“If we analyze the three-year period, between the beginning of the pandemic, in March 2020, and March 2023, the IGP-M rose 52.52%, while the IPCA varied 22.79%. Therefore, in three years, the savings was approximately 30%, when analyzing the three-year interval. Which can be considered a significant savings”, says Cyro Naufel, institutional and customer service director at Lopes.

“However, in the last 12 months, the IPCA had a positive variation of 4.65%, while the IGP-M varied negatively by 2.17%, resulting in a difference between the indices of almost 7%. 12 months.”

For experts, the savings obtained by the lessee depends a lot on when the index change was made, and what period of analysis.

“I would say that over the period of the contract, normally at least 30 months, the indices tend to converge. There is no index that is always lower than another. way for the convergence of interests”, says Naufel.

What is the index of your contract?

A survey carried out by DataZAP+ at the end of 2022 points out that 36% of people with current contracts do not know how their rent adjustment works. Still according to the survey, 58% of those looking for rental properties did not know which index could be applied in the contract.

Larissa Gonçalves says that important variations in indexes can considerably change the final rental price, so research is essential.

“The choice of index is important in the leasing journey. Depending on the index chosen, the readjustment may be higher or lower, affecting the lessee’s expenses to a greater or lesser extent and impacting the continuation of the initial agreement between the lessor and lessee”, he says .

Although the IGP-M is the most used, the owner and lessee have the right to opt for other indices, by mutual agreement. Some examples are:

• IPCA: Extended Consumer Price Index, released by IBGE
• IVAR: Residential Rent Variation Index, calculated by FGV IBRE
• IPC: Consumer Price Index, published by FIPE
• INPC: National Consumer Price Index, published by IBGE

Example: Considering a residential property rented for R$ 1,000 in March 2020, with readjustments until 2023. Not counting the value of the condominium, and the year-to-year readjustments, after 12 months, by the different indices: IGP-M, IPCA and IVAR ( Residential Rent Change Index), the tenant would pay:

	IGP-M	IPCA	VAT
Sea. 2021	BRL 1,311.00	BRL 1,061.20	BRL 1,008.40
Sea. 2022	BRL 1,504.63	BRL 1,181.12	BRL 1,071.32
Sea. 2023	BRL 1,507.19	BRL 1,236.04	BRL 1,166.67
HIGH IN THE PERIOD	BRL 507.19	BRL 236.04	BRL 166.67

Source: Zap+

Although tenants expect a reduction in rent with the drop in the IGP-M, in reality, the value should be maintained, with the possibility of new negotiations.

“The contract is an instrument that regulates all aspects of the correction of lease values. Normally there is no retroactive balance. Reductions in value can also be freely negotiated between the parties”, says Naufel.

ASK DOUBTS ABOUT RENT CORRECTION

1) With the negative IGP-M, can I ask to lower my rent price?

In general, a clause in the lease contract provides for the readjustment only when the index is positive, maintaining the previously agreed amount if the index is negative. Therefore, even contracts that would be updated in April, when the IGP-M reached -2.17% in the accumulated 12 months, should only maintain rental prices for the next cycle.

Reductions in the value and revision of the chosen index, however, can be freely negotiated as the property owner.

Attention! All changes made must be included in a contract amendment.

two) What calculation does the tenant have to do to find out the readjustment value?

To find out what the adjustment value will be, you must first check the month in which the lease contract was closed. For example, if the closing of the contract and the first month of housing were in May 2022, the index released in May 2023 should be considered, more specifically the accumulated value in 12 months. The index value multiplied to the rent value will result in the amount that will be added to the rent.

Example: to update a rent of BRL 2,000, which was in effect until April 2023, multiply by the readjustment factor 0.9783. The result is BRL 1,956.60. This would be the amount to be paid at the end of this month of May or at the beginning of June.

Readjustment factors in recent months:

• Contract with birthday in April/2022 and payment in May/2022: 1.1477
• Contract with birthday in May/2022 and payment in June/2022: 1.1466
• Contract with birthday in June/2022 and payment in July/2022: 1.1072
• Contract with birthday in July/2022 and payment in August/2022: 1.1070
• Contract with birthday in August/2022 and payment in September/2022: 1.1008
• Contract with birthday in September/2022 and payment in October/2022: 1.0859
• Contract with birthday in October/2022 and payment in November/2022: 1.0825
• Contract with birthday in November/2022 and payment in December/2022: 1.0652
• Contract with birthday in December/2022 and payment in January/2023: 1.0590
• Contract with birthday in January/2023 and payment in February/2023: 1.0545
• Contract with birthday in February/2023 and payment in March/2023: 1.0379
• Contract with birthday in March/2023 and payment in April/2023: 1.0186
• Contract with anniversary in April/2023 and payment in May/2023: 1.0017
• Contract with birthday in May/2023 and payment in June/2023: 0.9783

3) IGP-M or IPCA? Which index is better to fix the rent?

According to experts, there is no index that is always lower than another. If it points to any significant difference, free negotiation between the parties will always be the best way to converge interests.

In general, the choice of index occurs in the definition of the lease agreement before handing over the keys. However, as the readjustment of the rent value is usually done in 12-month cycles, which is the most common period, it is possible in this case that both parties agree to a review of the chosen index.