Dubai's new rental index is based on star ratings for buildings

Dubai's new rental index will be based on a rating system for each building, and landlords may have to renovate or upgrade their properties to justify rent increases.

The Dubai Land Department on Thursday launched a new smart rental index with a classification and a rating system from one to five stars for residential buildings, based on more than 60 criteria including its location, sustainability factors, building security, age and amenities.

“There is a certain weightage for the building classification and if somebody wants to increase the rating from three to four or four to five to increase the value, they have to do renovation to raise the classification,” Majid Al Marri, chief executive of real estate registration at the DLD, said.

“We want to encourage all owners to improve the quality of the building and to align with government regulations for safety, security, civil defence, Dubai police requirements and periodical maintenance. All of this is related to building classification.”

The new index is expected to reduce disputes between tenants and landlords and support the real estate market with more leases and new investment. “It also creates a sustainable and balanced real estate environment and meets the needs of tenants and landlords,” Mr Al Marri added.

The new index can be updated at any time, unlike its predecessor, which was updated yearly. The old index was based on zones or districts, while the new one focuses on each building by using AI technology and covers all areas in Dubai including freehold and non-freehold areas.

Currently, the rating system is applied only to residential buildings. The DLD plans to include commercial, retail and industrial buildings in the future.

In 2024, the number of registered leases rose 8 per cent annually to more than 900,000, “reflecting growing confidence in Dubai’s real estate sector”, Mr Al Marri added. Officials expect the index to reduce disputes between landlord and tenants by more than 20 per cent.

“Today we want everyone to benefit, whether the tenant, owner or the market … We tried to create balance between three parties.” Mr Al Marri also added that rental increases will be based on the old system, Decree No 34 of 2013 and the “system will not change the percentages”.

The owner could notify the tenant to prepare financially to keep up with any change, he added. Owners can ask for a building to be evaluated at any time for an increase in the rating.

The old index gave tenants and landlords a ballpark figure of a property's worth per year, largely based on average prices for that area in the past year or two. The Real Estate Regulatory Authority’s rental index was last recalibrated on March 1.

Rents have become a tug of war between tenants and landlords due to surging demand and a population boom. Rents in Dubai increased in the third quarter of 2024 for the 15th consecutive quarter and by 18 per cent annually, property consultancy Cushman and Wakefield Core said in November.

Apartment rents increased by 19 per cent annually, while villa rents recorded a more moderate increase of 13 per cent, the research found. There has also been a continued increase in lease renewals, which rose by 16 per cent in the third quarter.

Housing is likely to remain the “key determinant of Dubai’s inflation metric”, Emirates NBD bank said last month. Average annual rents in the city were up 20.8 per cent in November, it found.

“The new rental index will add a further layer of transparency to the Dubai market, providing additional data and granularity for landlords and tenants alike, and allowing a more accurate assessment of unit level market rents,” Matthew Green, head of research at CBRE Mena, said.

“This is becoming increasingly important in a maturing market where individual property upgrades and renovations have become very common, particularly across older freehold areas of the city, including the likes of the Springs, Lakes, Meadows, and parts of Palm Jumeirah.”

Mario Volpi, head of brokerage at Novvi Properties, said the new system will “add balance and transparency to the whole rental market” and “take into consideration not just old rental contracts but new ones as well”.

“Currently we are in a landlords' market, so tenants will possibly feel the pinch at their next renewal, but this will change once we get to a tenants' market once again,” said Mr Volpi. “The market is cyclical, so this will happen once rents start to drop, but nobody can predict when this will happen. With transparency and this rebalancing, all parties will be treated fairly depending on the market place of the time.”

The DLD's new rental index is a “transformative milestone for the emirate’s real estate market”, said Farooq Syed, chief executive of Springfield Properties. “This policy ensures market stability by tying rental values directly to property quality, providing tenants with fairer pricing while encouraging landlords to invest in improvements. Such measures foster tenant satisfaction and enhance the overall quality of the rental market.”

Similarly, Harris Hiscoe, head of leasing at Espace Real Estate, called the DLD’s new rental index “a game-changer for the rental market and a long-overdue shift toward fairness and transparency”.

“For tenants, it’s a relief – if you’re living in an older building that hasn’t been properly maintained, you won’t be stuck paying the same as someone in a brand new, high-end development nearby. And for landlords, especially those who’ve invested in renovations or upgrades, this is a chance to see those efforts reflected in rental valuations,” he added.