The Bhutanese Leading the way.
The four-storied Wangdi Plaza sitting opposite the Post Office on the Chang Lam road is one of the landmark buildings in the core Thimphu area.
This building has now achieved a different kind of fame among the mainly tenant business community in town as its landlord increased his rent by around 100% for most of his tenants last year.
Public records show that this resulted in an official complaint filed by one of the tenants, Lamla Enterprise, to the Thromde Tenancy Dispute Settlement Committee.
The committee which is a quasi-judicial body allowed both sides to try and resolve it among themselves and both the land lord and Lamla came to an arrangement of sorts, but not without Lamla moving out of most of the units it earlier occupied.
Big jump
The Bhutanese did a quick survey of the rents in the entire building.
In the Lamla case the shop on the ground floor and its showroom and storeroom occupying the entire first floor paid Nu 115,000 per month from 2018-19 to 2023 when the landlord demanded Nu 230,000 from July 2023 onwards. After the complaint Lamla moved out his entire first floor showroom and store to his own building in Olakha.
He kept only his main shop there whose rent till June 2023 was Nu 50,000 but the landlord wanted Nu 100,000 from July 2023 onwards. Lamla as part of the negotiations got a Nu 20,000 discount and the shop now pays Nu 80,000 per month.
Space 34 the disco and bar popular among youngsters was paying Nu 180,000 per month for using the entire basement space of Wangdi Plaza. It had started with a rent of Nu 80,000 around 12 years ago.
The landlord came with a new deal offering some extra extension space in the basement and a kitchen space on the ground floor but wanting a rent of Nu 490,000 per month up from Nu 180,000.
This was negotiated to Nu 390,000 per month effective from when some renovation work gets completed in a month’s time.
Unlike other businesses Space 34 does not have the luxury of moving out as it spent around Nu 30 million over the years refurbishing and redesigning the place.
Space 34 seems to be one of the few pandemic proof businesses as while its customer base has gone down it is also stabilizing with the next generation of youngsters starting to go out.
However, the business now has to manage a more than double rent and its 50 plus staff it employs as bartenders, bouncers, chefs etc.
Lungta Handicrafts which occupies a conjoined ground floor and first floor showroom was paying Nu 90,000 from 2018-19 till 2023 but now the rent is hiked by Nu 100,000 to 190,000 per month which is a more than 100% increase. Lungta Handicrafts has spent Nu 1.5 mn of its own money refurbishing the interiors over the years.
Like all handicrafts, business was dead for many years after the pandemic due to the tourism slump.
The writer observed that the handicraft showroom was empty with no customers but around 5 to 6 sales girls, one of whom, said business is slow and pretty much non-existent in the off season.
A shop called P.T Enterprise was paying Nu 70,000 for around 3 units on the ground floor and a store below but when the rent was hiked to Nu 150,000 from July 2023 the shop gave back some units and the store and paid Nu 90,000 for six months.
PT enterprise tried to hold on as it had spent Nu 2.1 mn in the fixtures but with business not doing well and unable to pay the higher rent the shop moved out to its printing press in Hejo, near the Indian Embassy.
There was a hair salon with Nu 15,000 rental which was increased to Nu 30,000 and the salon moved out to a new location. The salon owner a lady has since given up her business due to ill health and lack of customers.
There is a small restaurant on the ground floor which was paying Nu 15,000 until 2023 June and then it was asked to pay Nu 50,000. A request was made in the mid of others leaving and Nu 30,000 was agreed but given the slow business the rent is a challenge and the restaurant may shift out if things continue like this.
A medical shop in the front on the ground floor was paying Nu 20,000 but it was asked to pay Nu 50,000 and could not afford it and so it moved back inside for a rent of Nu 30,000.
A small pan shop in the inside part of the ground floor was paying Nu 6,000 but is now paying Nu 10,000 while a tailoring shop is paying Nu 10,000 after the previous tailor who paid Nu 7,000 left.
A sports center shop on the second floor who is currently paying Nu 35,000 is moving out.
A bigger Thai restaurant on the same floor called Dip and Slurp moved in after a previous tenant paying Nu 50,000 moved out. The restaurant got a family discount of Nu 30,000 rent but an increase is likely on the cards.
On the second floor, also is a Kathok Yosel Samtenling Dharma Center office whose rent is Nu 50,000 since 2019 but a 10,000 discount was given as an offering and the rent was Nu 40,000.
A staff said the landlord indicated a rental hike but after people from downstairs commercial areas moved out that indication was no longer there.
The top floor or third floor is entirely taken by the Institute of Professional Studies (IPS) which runs several companies like training agency, tourism, education consultancy etc.
The IPS also seems to be a beneficiary of the chaos and people moving out downstairs as his rent continues to be the Nu 80,000 signed in the 2019 lease.
The CEO of IPS said that his Nu 80,000 rent is very reasonable as it would be much more expensive for the same space in the nearby new buildings.
He said in the past he tried moving one office to a new building nearby but the rent there was higher for a smaller place and so he moved back to Wangdi Plaza.
A Japanese snack shop called abito moved in recently on the ground floor after a previous tenant moved out and here the rent is Nu 100,000 per month.
An observer said the shop is able to survive due to the Space 34 customers coming late at night.
In terms of new tenants a small handicraft shop is charged Nu 40,000 and a small clothes shop is being charged Nu 30,000.
The issue
The heart of the dispute stemmed from the fact that the landlord saw huge rents being charged by the new buildings in town and he felt that he was charging well below market rate.
A source said that the landlord was particularly perturbed by the rents in the new buildings nearby and also other new buildings which came up. However, the same source said it is not a fair comparison as the nearby buildings are new and use superior construction material and even have lifts and they would have constructed at a higher cost with loans.
From the perspective of the tenants it seems they found this hike too high and sudden especially at a time when business is down after the pandemic and huge migration, and also when other landlords in town are either reducing the rents, not increasing it or increasing it only marginally.
Requests were made to increase the rent, but by a more reasonable percentage like 30% but it was not heeded to.
Landlord has his say
The landlord said he did not violate the Tenancy Act as he waited for the lease of around 5 years to expire and then came up with a new lease closer to the commercial rates in town for his location which he still says is still below the market rate.
The Tenancy Act says the rent increase should be around 10% after every two years.
The landlord said that his parents are very pious people and so they charged rents below the market rates starting from 2005 when the building was completed and they did not increase the rents every two years like others. The tenants also agreed that rent was not regularly increased every two years.
The landlord said the businesses enjoyed low rent and the tenants were treated like family and so people ‘who came with a table and chair’ prospered but it is not fair for the landlord to be at the poverty level.
He said the rent charged earlier was as low as one fifth of the going market rate and the current rents even after the increase in the new lease is still below the market rate.
The building loan has been paid.
The landlord said that earlier Chang Lam was not considered a central location which was reserved for Norzin Lam but over the years Chang Lam has become gentrified and his building is in central location in its own right.
He said another reason to go for such a hike was the Tenancy Act itself. He said that if he did not come out with a higher amount in the new lease then the tenants would have taken him to court if he tried to charge higher than the 10% every two years after signing the lease for a lower amount.
The landlord also said that a higher rent would also keep away undesirable elements like those with low capital.
Impact of the hike and empty spaces
The impact of the rental increase is that while on the whole the landlord is making more rental income than before large parts of the landlord’s building is empty.
The ground floor has around 3 units empty, the first floor taken by Lamla has been empty for a year, including the former salon space, a shop is emptying out on the second floor and there are other tenants who may move out.
Responding to the empty space issue the landlord said he rather keep his units empty than give it below the market rate.
The above case shows the huge power differential when it comes to landlords and tenants in Thimphu and particularly for commercial spaces.
It also shows the complicated dynamics when tenants start doing well and there have been other cases where landlords evict tenants doing well and try to replicate the same business.
However, this power dynamic is shifting slowly but surely.
Given the sharp decline in the business environment and other emptying commercial spaces even along Norzin Lam it does not look likely that the empty spaces in Wangdi Plaza will fill out anytime soon.
A source said that the Wangdi Plaza landlord was influenced by the record high rents of new buildings and upcoming buildings which spoil the market rental rate, but here he said that even if these new buildings find tenants they will most probably fail due to the combination of high rents and the poor business environment with reduced customers.
In fact, a new trend is now growing of landlords of commercial spaces trying to attract away major tenants from other buildings with secretive calls offering cheaper rents.
Given how things are shaping up a major reckoning may be coming for landlords of commercial spaces soon.
