Rental Index changes to reflect Building Quality
Author Gareth Davies - Award Winning Broker and Property Consultant
The Dubai Rental Index, which has limited the amount of rent increase a Landlord can receive on the renewal of a Tenancy Contract, could be revised to reflect building conditions, rather than based on community trends.
Proposals being considered by Dubai Government include modifying the Rental Index so that it is linked to specific buildings rather than community rental 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.
The new Rental Index could be based on the age, quality, and other facilities within an individual tower / building. For example, if there are 20 towers in a particular community, rent changes will be based on each tower rather than what is happening with demand and supply in that area.
During the past year most communities in Dubai have experienced rent increases of between 15% and 25%. Larger increases have occurred in prime locations such as Palm Jumeirah and Downtown.
Within a community, such as Dubai Marina for example, the rent increases for recently constructed, high quality buildings such as Marina Gate have been greater than the older towers such as Marina Diamond, Manchester Tower etc. Under the new system the Landlords of apartments in the older towers will not automatically be able to ask tenants for similar rent increases to the higher quality towers with better facilities and amenities.
By how much can Landlords Increase Rent?
The immediate goal of the proposed modifications to the Rental Index measures is to prevent situations where landlords of older buildings increase rents because the rents of newer and/or better-quality buildings have increased more rapidly.
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.
The Dubai Rental Index had been put on hold for the past two years so the current average rents for communities reflect 2020 rents which were agreed during the peak of the Covid-19 pandemic. The proposed new index should be more in line with the current state of the market and reflect the increase in rents over the past two years.
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