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Dubai’s New Rental Index To Be Based On Building Conditions

Dubai's Rental Index

Dubai’s rental market is one of the strongest real estate section as a majority of expatriates first start their journey with rental properties in Dubai. It is a common practice in Dubai to fix rent for a year and increase it by the start of the next rental index renewal period. Therefore, before the start of every rent period the most important question asked by tenants is; how much can a landlord increase the rent? On the contrary, it is also a concern for landlords especially, if they believe that the property’s rent should be higher than what is being currently charged.

To resolve this matter amicably and to keep Dubai real estate sector working seamlessly, the Dubai Land Department (DLD) and it’s Real Estate Regulatory Agency (RERA) have developed tools like the Dubai Rental Index and Rental Valuation Certificate to help both parties determine the expected amount of rent. Besides relying on these tools, being a tenant there are certain things that you must know before renting a property in Dubai. Let’s also have a look at these government-provided services.

Dubai’s Rental Index

Rental Index is the Dubai Land Department’s online service, which has a rent increase calculator. This service gives tenants a clear idea of how much increase they should expect, upon the renewal of their rental contract. You can access this tool on DLD’s website – dubailand.gov.ae/en/eservices/rental-index/rental-index and receive information on the current rent in your locality and the maximum amount of increase in rent allowed – depending upon the type of property and number of bedrooms.

Notably, the rental increase depends upon these above-mentioned factors and does not base on the type of building, condition of the building, maintenance of the building, or the quality of facilities provided by the development.

Rent hike – A common practice in Dubai real estate market

Dubai's Rental Index

Currently, rental hikes can be commonly observed across Dubai, as more and more landlords are increasing rent. According to news, in some posh communities including Palm Jumeirah, Downtown Dubai and Dubai Marina 21% hike in rent is recorded, because an arbitrary rent increase is a common practice in the post-pandemic Dubai real estate market. Evictions are also imposed by landlords in several conditions, where landlords hope to get higher rents for properties in Dubai. Every tenant must be aware of his tenant’s rights including whether a landlord can increase rent in Dubai or not.

Dubai intends to rework its Rental Index

Dubai is currently in the planning phase to redo its Rental Index to connect this tool to individual buildings rather than the general trends within a neighbourhood. Though the change is still in the proposal stage, but upon implementation, it would give greater transparency on how rental rates are set. Moreover, it will also become the development owner’s responsibility to make sure his rental demands are warranted.

“For too long, rent increases or demands have been about the area that particular property or building is in,” according to a source in Dubai real estate industry. “With the plan that’s being worked out, Dubai’s new Rental Index will be based on the age, quality, 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.”

Biggest Makeover for Dubai Rental Index

Upon implementation, it will be the biggest makeover for the Dubai Rental Index and it will make sure that rental demands are transparently worked out by landlords. The tenants will also have a clear and transparent picture to judge the hike by themselves.

Moreover, the new rental index tool will also be based on the star rating of each building in every neighbourhood. The official authorities in Dubai have already completed ratings of all residential apartment developments. Initially, the index will cover all residential buildings in Dubai and later move to villas.

Under the new index, the four-star buildings are categorized as “free”, which means these are ultra-luxury buildings and there will be no restriction in terms of rental increase. While other buildings are allowed to increase the rent as per the policies that would be approved by the officials.

The building rating system was launched in 2015-2016 and it covers all the old and new buildings in the emirate. “The new rating mechanism is planned to be rolled out next year, following the approvals by the higher authorities,” said the source.

How much can landlords increase the rent?

The basic purpose of this major reform is to avoid instances where older developments also increase rental rates each time a new building comes to the neighbourhood that aims to charge higher rents. It is a common practice that landlords observe the rental increase trend in the area and demand higher rent without improving their building or introducing any new amenity or feature for a comfortable lifestyle for residents. Now after the implementation, these landlords will only increase rents in line with inflation or within a certain range.

September 2022 – The month with highest growth rate

Dubai's Rental Index

September 2022 remained the most successful month in terms of rental growth, as average rental rates in Dubai real estate market recorded their highest growth rate. According to a report issued by a Dubai real estate consultancy firm CBRE, the average rent in Dubai increasing by 26.6 per cent. Average apartment and villa rents increased by 26.7 per cent and 25.5 per cent, respectively, during this period.

It is also a common observation that rental rates for luxury properties in Dubai in all high-end areas have increased at a faster rate, as compared to average areas with reasonable properties. A strong demand and an influx of high-net-worth individuals to the emirate are two major reasons for significant rental increase in these communities.

What are your thoughts about the proposed changes in Dubai’s Rental Index? If you have something to say in this regard being a tenant or being a landlord, you can contact the team HFRE at +971 4876 2473 or you can also write us in detail at info@hfre.ae. We would like to know your views!

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