Dubai is thinking of reworking its Rental Index so that it is tied to specific buildings rather than neighborhood or district trends. Although it is still only a proposal, if adopted, it would increase the transparency of the rate-setting process. It will also fall on the landlord or building owner to ensure that his rental requests are reasonable.
“For too long, rent increases or demands have been about the area that particular property or building is in,” said a senior source in the industry. “With the plan that’s being worked out, Dubai’s new Rental Index will be based on the age, quality, and other facilities within that building. So, if there are 50 towers in a particular district, rent changes will be based on each tower rather than what’s happening with demand and supply in that area.”
It’s interesting to note that this updated design only applies to apartment buildings, not villas. Whether a new index will be developed for villas is unclear.
If approved, a change would occur at a time when most neighborhoods in Dubai have seen rent rises of between 15% and 25%. Even larger increases than the national average have been observed in places like the Palm, Downtown, and Dubai Marina.
Whatever the case, the proposal ensures that landlords transparently determine rental requests, and it constitutes the biggest overhaul of the Dubai Rental Index. Tenants will be allowed to decide for themselves how that is, after all.
“For instance, rents increase in an area for new buildings, it will not automatically mean a much older building in the area – and one without many key features – can ask tenants for similar increases,” said the source. “This is why landlords/building owners must get into Dubai’s rating system for individual buildings.” The star rating system program was launched in 2015-16 and since then has covered old and new buildings in the city.
How much can landlords increase
The immediate goal of the modifications to the Rental Index measures is to prevent situations where landlords of older buildings increase rates every time newer structures with higher rentals arrive in the neighbourhood. Or in cases where landlords want higher rents only because the neighborhood’s rents have gone up.
Landlords with structures older than a particular age would only be permitted to increase rent in line with inflation or within a specific range under the proposed change. Those who own homes in more recent structures and who have 4-star ratings have a lot more leeway in terms of when and how much they can improve. (Brick and mortar structures with excellent green and sustainability credentials will receive five-star ratings.)
With the exception of the early Covid phase, the Rental Index had been put on hold for the past two years. The time has come, according to market sources, for a new index that is more in line with the present and future state of the market, given the persistent increase in rents over the past two years.