Rent hikes in Dubai may slow down if buildings’ “star ratings” impact Rental Index

According to reports, if annual rent hikes are computed based on the proposed “star grading” system for buildings, there may be a more equitable dynamic between tenants and landlords in Dubai’s residential renting market.
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. 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 over the past two years, say sources.
The 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 percent, 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 by 15-25 percent, which would make it in line with the current market rates at Downtown.
“We had a situation where a property Downtown had a rental of 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.”
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 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 percent just because the rest of the properties in his area have.”
According to market sources, Dubai rentals have increased by 20–30% on average, and a further increase is predicted for the last few weeks of 2022.