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 Adjustment Based on Relative or Absolute Factors

Use

Adjustment Based on Relative Factors

This adjustment method is based on a previous adjustment or on the starting situation for a new contract. You can make an adjustment relative to the prior cost levels, on the basis of the following three cost factors:

  • Protection of purchasing power (for risk capital) = 40% of cost increases as determined by the Swiss standard of living index

  • A change in mortgage rates

  • Adjustment based on changes to operating costs

If you do not make full use of an available adjustment, then you have to record this in the form of a reserve .

Adjustment Based on Absolute Factors

When you use this adjustment method, the absolute factors are represented by statistical conditions. The amount of these conditions is not calculated by the SAP System. You can use one of these conditions (at a given time) as the basis for a rent adjustment:

  • Prevailing rent

    The procedure for calculating this adjustment is the same as for calculating a reserve . This calculation method is used for older real estate objects, but it does not play an important role.

  • Net ROI

  • Break-even gross ROI

    The return on investment (that is, revenue as a percentage), is the relationship between the investment made and the income realized by the property. For real estate, there is a distinction made between net revenue (relationship between investment capital and income after deducting all expenses) and gross revenue (relationship between the investment costs and rent income).

This makes it possible for you to enter a percentage for a statistical condition in order to adjust other conditions.

Prerequisites

Customizing

You made the settings for rent adjustment (Switzerland) in Customizing.

Application

You entered master data parameters for the adjustment. For an overview of these parameters, see Overview: Calculation Bases for Adjustment .

Features

The following are examples for the calculation of relative factors:

Mortgage rate level : The current mortgage rate is 4.75%. The mortgage rate is reduced to 4.0%, and rent should be reduced based on this change. The system calculates the rent adjustment based on the change in the mortgage rate, using the interest spread entries that were made in Customizing.

Maintenance and operating costs : In this example, the adjustment is one percent per year based on maintenance and operating costs. You enter this percentage in the adjustment rule in Customizing. The system then calculates pro rata: for each month, one-twelfth of a percent in the time period from the base date to the adjustment date.

Protection of purchasing power : The system determines the index change from the base date to the adjustment date as a percentage, and calculates 40% of this amount (Customizing).

The total adjustment is the sum of the three adjustment reasons.

The system determines the reserve using the same procedure as for an adjustment, except that the reserve determination is based on the adjustment date of the cost levels on the date last entered in Customizing (see Calculation of the Reserve ).

Activities

You enter the parameters for the adjustment run and for calculating reserves using the same procedures as for a general rent adjustment method .

  1. To do so, on the SAP Easy Access screen, choose Start of the navigation path Accounting Next navigation step Flexible Real Estate Management Next navigation step Adjustment of Conditions Next navigation step Adjustment Next navigation step Specify Adjustments End of the navigation path .

  2. Select the real estate contracts and rental objects for which you want to adjust conditions.

  3. Set the indicator for the Swiss procedure that the adjustment rules for relative and absolute factors are assigned to.

    On the Processing Paramet. tab page, you can enter additional parameters for the adjustment.

    Note Note

    You can only use one of the two methods for the adjustment.

    End of the note.

  4. On the Adjustment (Switzerland) tab page, enter the data for the calculation base for the relative method .

  5. If applicable, enter the parameters for the absolute method :

    Enter an absolute amount or a percentage (up to a level of 80% of gross ROI). The system can perform the adjustment only if you entered the necessary statistical conditions on the rental spaces, and enough reserve is determined resulting from these conditions.

  6. Specify how you want the system to treat any reserves that are created:

    Enter the priority to be used for clearing the reserve. Rent reductions due to the relative method are cleared against existing reserves due to the absolute method.

    Example Example

    Due to a modernization investment, you have a reserve of CHF 50. You also have a reserve of CHF 100 due to break-even gross ROI. If you enter the modernization investment in the 1st Priority field, then the system clears the planned rent reduction of CHF 80 against the reserve for the modernization investment of CHF 50 first. Then it clears the remaining CHF 30 against the reserve based on gross rent. The result is a net adjustment of CHF 0. (Only the calculation bases were changed).

    End of the example.

    For more information, see Calculation of the Reserve .

  7. If necessary, make entries for the validity date of the new conditions, the status and correspondence.

  8. Run the program.

  9. The system displays an overview of the adjusted conditions.

Result

If you perform an update run of the adjustment run, then the system adjusts the conditions so they have the new condition amounts. You can display the individual conditions and condition amounts, along with basis for the adjustment, in the overview screen.

You can then use the rent adjustment form to notify tenants in writing about the rent adjustment. Choose with the quick info text Correspondence.

Note Note

For more information on giving notice and re-renting, see Subsequent Processes for Rent Adjustment (Switzerland) .

End of the note.