RERA Rental Index Revised: Is it Going to Impact Your Rent?

Recently, on March 1st, RERA (Real Estate Regulatory Authority) made a significant announcement regarding the rental index, stirring up a lot of confusion among tenants. Many are worried about how this revision will impact their upcoming lease renewals. With the rental index calculator being an unfamiliar territory for most, understanding its implications is crucial. In this blog, we will be discussing everything you need to know about the rental index, especially shedding light on its workings and implications for tenants.

Let's start with the basics first!

What is RERA?

RERA is a vital division of the Dubai Land Department (DLD) that plays a pivotal role in regulating the real estate sector. It helps to uphold operational standards and fairness across property transactions. Their responsibilities encompass establishing and enforcing regulations to govern property operations, ensuring transparency, and maintaining integrity throughout the industry. Their diligent oversight aims to foster an environment of trust and reliability in the real estate market and safeguard the interests of both buyers and sellers.

What is the RERA Rental Index?

As per DLD regulations, landlords have the right to adjust rents annually upon contract renewal. But the government has put a cap on this increase. This cap is determined by the RERA rental index, which undergoes regular updates to reflect current property market trends. Both landlords and tenants can utilize the RERA rental calculator which is an online tool enabling them to ascertain permissible rental adjustments in accordance with prevailing market values. This transparent system ensures fairness and clarity in rental negotiations, benefiting both parties involved.

How Does the Rental Calculator Work?

The annual rental index adjustment is determined by various factors, including property type, location, and number of rooms. It's categorized as follows:

• No rent increase if current rent is 10% below market value.
• A maximum 5% increase if rent is 10-20% below market value.
• Up to 10% increase if rent is 20-30% below market value.
• A maximum 15% increase if rent is 31-40% below market value.
• A potential 20% increase if rent is 40% or more below market value.

Let us explain this to you with an example!

In 2023, the typical annual rent for a studio apartment in Dubai Sports City ranged from AED 36K to 40K. If you're currently paying 40% below market value, your landlord may increase your rent by 20% upon renewal. For instance, if your rent is below AED 21,600, the maximum increase would be AED 7,200.

How to Use the RERA Rent Calculator?

The DLD website features a rent calculator page. You can access it through this link: https://dubailand.gov.ae/en/eservices/rental-index/rental-index/#/.

Once there, you'll need to input specific details like contract end date, area, property type, and current rent. After providing this information, the calculator will determine the maximum allowable rent increase for your situation.

This tool is not limited to residential properties, whether you're checking for commercial, staff accommodation, or industrial spaces, simply provide the area per square foot.

Impact of Rent Increases on the Overall Property Market

Rising Property Demand

As rents increase, some tenants may decide to transition to property ownership, driving up demand in the real estate market.

Potential Price Escalation

Higher demand for properties, coupled with limited supply in certain areas, could lead to price escalation in the housing market.

Investor Interest

Increased rental income potential may attract more investors to the property market, leading to higher investment activity and possibly further price appreciation.

Regional Variations

Rent increases may vary regionally, impacting property markets differently based on local demand-supply dynamics and economic conditions.

Affordability Concerns

However, for some potential buyers, especially first-time buyers, rising rents may exacerbate affordability concerns, potentially dampening demand in certain segments of the property market.

Why is it the Right Time to Invest in Dubai Real Estate?

Favorable Mortgage Rates

The mortgage rates currently are at an attractive level and most likely to go down by the mid of this year. This means transitioning from renting to homeownership will allow tenants to capitalize on these favorable financing options, potentially securing lower monthly payments compared to renting.

Building Equity

Instead of paying rent, homeowners have the opportunity to build equity in their property over time. Each mortgage payment contributes towards ownership and provides a tangible investment in real estate that can appreciate in value over the long term.

Potential Rental Returns

For those considering investment properties, owning real estate offers the opportunity to generate rental income. By purchasing a property, tenants can become landlords themselves and potentially earn rental returns on their investment while also enjoying the benefits of property ownership.

Conclusion

The increase in rental rate is an indication that the Dubai property market is growing and signifies a good trend. The real estate sector is rife with opportunities at the moment where you can pay a minimal down payment and find easy mortgage payment options. If you are looking to switch from being a tenant to an owner, at ERE Homes real estate agency, our team can help you find the most lucrative opportunity for you. Reach out to us today!