Dubai’s official Rental Index will be updated next year, with new rental bands based on additional factors including building quality, an official from the Dubai Land Department said on Monday – a move expected to impact property prices in the emirate.
The Dubai government issued a ‘rental cap’ decree in 2009 to regulate the maximum percentages of property rent increase permitted upon renewal of tenancy contracts. The emirate’s Real Estate Regulatory Agency in Dubai (RERA) also put in place an official rental index that lists average rental values of properties based on area and type of accommodation. The index, currently updated on an annual basis, is used as the main reference to determine average rent, upon which rental increases are calculated.
“It (the new index) will be a modified and improved version of the current index,” Mohamoud Hesham El Burai, CEO, Dubai Real Estate Institute Development, Dubai Land Department, told Thomson Reuters Projects in an interview.
The new index will be based on rating assigned to buildings in Dubai, he said. The ratings will be based on factors including the quality of the property.
“In the new rental index, there will be issues of quality,” he said on the sidelines of the Urban Thinkers Campus, a brainstorming session focused on the future of cities.
“So if the quality of the building is not that good, this will impact the rental (and) it will impact the yield,” he added.
The rental index currently classifies buildings based on area and type of accommodation, and slabs are set based on the average rent for similar properties.
Burai explained: “Because currently we say ‘this area is this average’, but now we will be saying, hopefully next year, that ‘this building is this average and that building next to it, although in the same area but a higher quality, green building, more facilities, security, this is 10 percent higher (for example)’.”
The official added that the new index would help investors with their purchase decisions and consequently impact property prices.
“Currently we say everything is general, same, average... based on area... so we leave it to the customer to decide that this is the building, this is its rental, this is its quality, this is its rating, so shall I buy it and at what price so I can make up for the return?” Burai said.
“We are rethinking the future of regulation, (and) I’m wishing that 2018 will be a great year,” he added.
Last month, Thomson Reuters Projects reported that the agency is also inspecting properties to make sure that the quality promised by developers selling off-plan is being delivered on completion.
“We are making sure all the quality... and finishes... promised by the developer, is delivered," Marwan Bin Ghalita, CEO of RERA said during the Cityscape Global Conference in Dubai.
"We will be watching quality. So any promise you put out there be sure that RERA will get back to you on that. We will be looking. We will not compromise on the quality you are promising the investor," he said.
Dubai’s rental index was introduced control erratic rent hikes and it has since been used as a reference to settle disputes between tenant and landlord over rental values.
Under the current law, landlords cannot arbitrarily increase the rental price of a leased property at the time of a contract renewal. Price increases are regulated based on the rental bands specified in the index. RERA’s online rental increase calculator allows Dubai residents to check whether a price increase is permitted under the current regulations.
Prior to the 2009 rental cap decree, rentals were regulated by the ‘tenancy law’ passed in 2007, which restricted rental increase for the first two years of tenancy.
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