Landlords across Dubai are bracing for potential financial pressure as the emirate implements a new artificial intelligence-driven star-rating system for buildings, with owners of older properties particularly vulnerable to declining rental yields and costly upgrades.
The comprehensive building classification system, launched last month by the Dubai Land Department, threatens to create a two-tier market that could squeeze out middle-class property investors and force extensive renovations across the emirate’s aging residential stock.
“Landlords in buildings with poor maintenance standards may face challenges such as reduced demand, higher vacancies, and declining rental yields,” said Jacob Fletcher, Head of Leasing for the Middle East at Engel & Völkers Middle East. “Some property owners are already pressuring building management to improve maintenance and overall quality.”
The new Smart Rental Index 2025 evaluates properties based on technical characteristics, maintenance standards, and available amenities, with rental increases tied directly to a building’s rating. This comes as Dubai’s rental market continues to surge, with projections showing an 18 per cent increase in short-term rentals and more than a 13 per cent rise in long-term leases for 2025.
Small landlords face particularly stark choices. “While the system aims to enhance quality and transparency, it may create additional barriers for middle-class investors looking to enter the rental market,” Fletcher noted. “Higher maintenance costs and increased competition from better-rated buildings could make it more challenging for smaller landlords to maintain profitability.”
Property experts suggest renovation costs could vary significantly depending on a building’s current condition. “Landlords might need to contribute to building-wide improvements like better security, upgraded lobbies, modernised elevators or even sustainability features like smart lighting,” said Ibrahim Abdulkarim, Team Lead at Metropolitan Premium Properties. “Depending on the extent of the work, these costs could range from a few thousand dirhams for minor fixes to substantial amounts for major upgrades.”
To combat potential downgrades, some buildings are seeing the emergence of resident committees to coordinate with management companies on necessary improvements. However, coordinating such efforts presents its own challenges, particularly in buildings with diverse ownership.
“Landlords in poorly maintained buildings could struggle to attract tenants, even if their individual units are upgraded,” Abdulkarim warned. “Tenants will likely prioritise a building’s overall rating over just a unit’s condition.”
The Dubai Land Department reported over 900,000 registered rental contracts in 2024, marking an 8 per cent growth from the previous year. Officials argue the new system will enhance market transparency and fairness.
For landlords looking to maintain competitiveness, experts recommend strategic approaches. “Small landlords can stay competitive by making targeted, cost-effective upgrades that improve their unit’s appeal, such as modernizing interiors or enhancing energy efficiency,” Fletcher suggested.
Looking ahead, the Dubai Land Department plans to expand the system to evaluate individual units rather than just buildings, though no timeline has been announced. The department is also working to include commercial and industrial properties in the index.
“This new system will likely shake up Dubai’s rental market by giving tenants more clarity and pushing landlords to maintain higher standards,” Abdulkarim said. “While it may create challenges for some, it also encourages better property management and could make Dubai’s rental sector more attractive in the long run.”
The initiative forms part of Dubai’s broader Real Estate Sector Strategy 2033, as the emirate’s property market continues to show strong growth with rising values and increasing transaction volumes.
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