Property index moves a step closer to reality

An eagerly awaited property index that will recommend rents for different types of homes in areas across Dubai has moved a stepped closer to reality.

The emirate's Real Estate Regulatory Authority (Rera) has completed the formula that will define rent structures and is preparing to launch the index at the beginning of next year.

"The index will stop landlords exaggerating and increasing rents," Mohammed Khalifa bin Hammad, Director of Owners' Relationship Management Department in Rera, told Emirates Business. "Rera has defined the average annual rents for studios, one, two and three-bedroom apartments and compound and single villas.

However the scheme will not be legally binding.

"The property index is not a law or obligation – landlords will not be forced to follow it. It is an indicator that shows the fair rent rate for each unit in each building or compound. It will be a clear guide to the real rent rates in the market in different districts taking into account the facilities in the unit and the surrounding area."

Bin Hamad said the move would create transparency over rent rates for each area and would will help investors to prepare their strategies.

"Once the index is ready investors will have a clear idea of the returns from rents in different areas. This will help them to make decisions about where to invest and what to build," said Bin Hamad.

He said all rent contracts and property registrations for both residential and commercial units would be entered into Rera's database at the beginning of next year.

"We will have full details of all the residential and commercial units in the emirate including the rents and details of the facilities and services available in these units as well as in the surrounding areas.

"We started work on the index in April. We have carried out a survey in co-operation with big real estate companies as well as major developers such as Nakheel to gather information on their properties. The index already covers most areas and it will be extended to the whole emirate before the end of the year."

Hamdan Al Madhani, the department's Senior Officer Contract Regulator at Owners' Relationship Management Department in Rera, said Rera had created a formula to calculate the index entry for each unit.

"The level of rent is calculated by adding points earned by each unit. This is similar to the annual employee appraisal process carried out by most companies where employees earn points based on their performance and other factors.

"With the property index, the rent is calculated by adding up the total amount of points earned by the units. A number of factors are taken into consideration. The first is the range of services available in the area such as shopping malls, parks, schools and parking areas and the distance to the nearest main road and mosques.

"The second factor relates to the nature of the building and the facilities it offers – this would include the age, the number of floors, whether there is a swimming pool or gym, the quality of finishings, the type of air conditioning, whether there is a central gas supply, the security and cleaning arrangements, the number of lifts and whether there is a central satellite TV connection.

"The third factor applies specifically to the unit – the view, the number of toilets and whether there are built-in wardrobes, a maid's room, a closed kitchen, a storeroom and balconies. The fourth factor is the built-up area."

He said each factor accounted for a percentage of the points available. For example for a flat the first factor would account for 20 per cent of the points, the second for 30 per cent, the third for 25 per cent and the fourth for 25 per cent. The distribution of the percentages would be different for villas in compounds and single villas.

"Calculating the rent is easy. For example we check rents in buildings in the same area and let's say the rent in building A is Dh100,000 per annum and when we have calculated all the factors mentioned above we find the total points earned by this building amounts to 80 points or 80 per cent of the maximum.

"Then we calculate the total points earned by building B based on the factors available and find it earned 75 points. To calculate the rent for building B we multiply Dh100,000 by 75 points and divide it by 80 points. This formula defines the rent in each area as per the market value."

Al Madhani said beginning 2009 Rera would publish the property index in all the newspapers once a month. The figures would change every quarter based on supply and demand factors.

"Once the index is launched those whose rent contract expires will no longer pay the old rent but will move to the new one based on the index. The index will also be used for rent dispute cases between landlords and tenants – the authorities will refer to it before taking any decisions."

The index will establish rents not only for a building but for each apartment within it. For example flats that face a main road or are bigger than others will command different rents than ones that face a backstreet, are smaller or are on the corner of the building.

"This system has not been implemented before either inside or outside the country – Dubai is the first to introduce it. Through it we will have a database for all property units in the emirate."



Property data available

A leading developer has asked Rera for information about the property index even before it has been launched, Mohammed Khalifa Bin Hamad told Emirates Business.

"Nakheel came to us and asked us to provide the index for one of its major property projects, the Gardens," he said.

"Tenants are currently paying around Dh30,000 per annum, which is too low compared with rents in the surrounding area and taking into account the facilities provided. We have given the company the index data for the Gardens."

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