At the beginning of January this year, the Emirate of Dubai introduced a significant change in the way rents are determined, the Smart Rental Index. In this article, we summarise for you the most important facts and shed light on how the Smart Rental Index affects the relationship between landlords and tenants:
1. Background
Both the Smart Rental Index and the previous Rental Index are used to determine whether or not an existing rent can be increased after the end of the current term of the tenancy contract.
The limits of a permissible rent increase are regulated by law and based on a rent index, i.e. the (Smart) Rental Index. As before, the annual rent may only be increased if the current rent is comparatively low and, in such a case, only by a certain maximum percentage.
2. Scope
The Smart Rental Index is currently only used for residential properties and replaces the previous Rental Index. It is intended to also include commercial properties into the Smart Rental Index in the future.
The Smart Rental Index applies to all residential areas in the Emirate of Dubai, regardless of whether the property is located inside or outside of a freehold area.
3. Changes
A comparison between the conventional Rental Index and the Smart Rental Index reveals three key differences:
a. Use of Real-Time Data
A major difference lies in the way in which the rent is calculated. The Rental Index is based on historical data that is updated once a year only. In contrast, the Smart Rental Index uses real-time data from various sources, in particular the Ejari Certificates, with the help of artificial intelligence.
b. Consideration of the Microlocation
While the Rental Index provides a general average value for an entire district of Dubai, the Smart Rental Index takes more detailed data into account, such as the specific location of a property.
c. Classification of the Property
The Smart Rental Index also takes the quality of the property and other rent-relevant factors into account. In contrast to the Rental Index, which is mainly based on prices per square meter and general market developments, the Smart Rental Index also factors in amenities, age and renovations when calculating the rent. A building that offers special facilities, such as a pool, gym or parking management, receives a higher index value.
In this respect, the Smart Rental Index assigns each residential building a classification ranging from one star to five stars.
4. Consequences
The use of real-time data enables an up-to-date depiction of actual market conditions. The inclusion of the specific location and the individual characteristics of a property form more precise grounds for determining an adequate rent and offers incentives to continuously maintain and modernise existing properties.
Overall, the Smart Rental Index is extremely welcome as it contributes to a more transparent, dynamic and, above all, fairer rental market.