Five different ways in which you can pay your rent in Dubai
There have been instances when the Rental Index would suggest a 5-10 per cent increase, while rent valuation could see it rise to 20-25 per cent. This sort of discrepancy could reduce drastically if Dubai goes ahead with the star rating system for buildings. Image Credit: Shutterstock

Dubai: Dubai’s residential rental market could be in for a more equal dynamic between tenant and landlord if annual rent increases are calculated based on the planned ‘star rating’ system for buildings, sources say.

A unified way of determining how much landlords can charge when the next renewal comes around could also cool some of the sharp increases Dubai’s rents have seen since the third quarter of 2021. Because right now, there are two ways rental increases are being set.

One is the original Dubai Rental Index, which gives clear guidelines on the extent of increases landlords can bring about, mostly when it comes to renewals. But this index needs updating to better reflect the changes that the market has been seeing through these two years, say sources.

Second option is for landlords or tenants to call in the rental valuation service offered by RERA and get a reading. This is what more landlords are opting for to get their rents in line with ‘market rates’.

This is causing a discrepancy in rental increases, sources add. “At the moment, the average market increase, for example, at Downtown Dubai would be around 5 per cent, as per the Rental Index,” said Liam Dawett, Leasing Manager at Betterhomes. “But once a rental valuation has been conducted on the same property, the amount can increase 15-25 per cent, which would make it in-line with the current market rates at the Downtown.

But once a rental valuation has been conducted on the same property, the amount can increase 15-25 per cent, which would make it in-line with the current market rates at the Downtown.

- Liam Dawett, Leasing Manager at Betterhomes

“We had a situation where a property at Downtown had a rental for Dh180,000. The owner did a valuation on the property as there was no indication from the Rental Index and found the average rental could be Dh210,000. This gave the landlord the authority to demand that the tenant leave the apartment or pay the increase.”

How can a rating system for buildings decide rent increases?
The proposed plan is to allow landlords to determine rent and any subsequent increases based on the building’s rating. A 4-star rating offers landlords greater flexibility to set the rent range, while lower ratings require them to increase within a certain range. Older buildings need to do so based on factors such as quality, age of the property, availability of facilities, etc.

This is what the proposed change to the way the Rental Index could help avoid. Each building within an area gets rated, and only based on the rating assigned would the rent increases happen.

“It means there could be different rents or rental increases for buildings within the same area,” said a source. “Landlords will have to be really transparent in why they are asking for a rent increase and by how much. A 2-star rating for a building will not give the landlord the right to hike by 10-20 per cent just because the rest of the properties in his area have.”

Dubai rents have risen by 20-30 per cent on average, and market sources say a further spike can be expected in the final weeks of 2022. 

When can rent valuation results be applied
The rent valuation can come into effect only when a property is vacant or becoming vacant. This is why there have been more cases of landlords asking for their existing tenants to vacant, serving them notices to do so. Some tenants have even received 12-month notices.