Dubai’s new rental index based on building quality and amenities is good news
Changes are underway in Dubai’s rental market. If the proposed changes are approved, landlords in Dubai will now face new restrictions when it comes to increasing rental prices. Rather than increasing prices based on the location alone, the building’s star rating will also be factored in going forward. This means that a building’s features and amenities will be directly linked to the price that landlords and property owners can charge as rent.
While these changes are not yet approved, they could come into effect in just a few months. While more restrictions might not sound like a good thing, they are actually favourable for property owners and tenants. Keep reading as we take a closer look at the coming changes, what they mean for landlords and renters, and why this is good news.
Rising rents are spurring changes
It is no secret that real estate prices in Dubai have been surging for some time now. But while luxury real estate is often at the frontline of discussions on price increases, the rental market isn’t far behind. The average annual rent for a single-family home in Dubai increased by 26%(1) between January and September 2022. Apartment rentals have increased further, seeing a 27% increase(2) between January and November 2022.
Currently, when rents are calculated for a building, they are predominantly based on the area the property is located in rather than its type. As a result, apartments in hot markets see a higher price increase. An apartment with no improvements can see a sudden, drastic rent hike. But that is set to change.
The changes we are seeing in the rental market are actually rooted in reforms implemented in 2015. At that time, a new rating system was created for apartments in Dubai. The rating system was a big win for the environment — in order to earn a five-star rating, a building had to meet certain sustainability targets and earn green credentials. The quality of materials used and available amenities were factored in to determine a property’s rating.
Creating transparency in the rental market
The proposed changes to the rental index are a win for tenants and property owners alike. Property owners will be rewarded for the improvements they make to a property. When they invest money back into a property, they will have the opportunity to receive a higher rent. Their profits are no longer tied only to the location of the property. It can be difficult to predict which area will become the next hot rental spot. But as a property owner, you can effectively predict the cost of renovations or amenities additions and the return on your investment that you might see through a higher rent price.
Tenants will see greater transparency in what they pay for a property. They will be able to link the amenities, specifically modern, sustainable or green-certified amenities, with the hike in rental prices. When a landlord wants to raise the rent on a property that has a three-star rating or lower, they will need to justify that. Tenants will no longer find themselves caught in surging rent prices simply because of where their apartment is located.
These new changes to the Dubai Rental Index could come into effect as early as next year, pending approval from authorities. Whether you are a property owner or a tenant, these changes are good news and something to look forward to in the new year.
