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How to rent out a property in Dubai and how profitable it is?

02/21/2024 379
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Short and long term rentals

Dubai is an international center of tourism, business and culture. Millions of tourists visit the city every year. This boosts both the demand for rental properties and the interest in property purchases. 

Minding the unstable global political situation renting an apartment in a promising and stable country can be a good source of income. That is why property owners from CIS countries are actively studying the key aspects of transferring property for temporary management to specialized companies, including the process of registration and obtaining a license. Thinking about this way of earning money, it is important to familiarize yourself with the current trends in the rental housing market in Dubai and the sensitive issues that can be encountered in the process of renting out real estate. 

Do owners have the right to rent out their property?

In Dubai, there are laws and regulations governing the relationship between landlords and tenants, as well as restrictions and opportunities related to renting out properties. According to Law No. 26 of 2007, owners of real estate property have the right to rent it out for long-term and short-term periods.  

It is important to know that only UAE residents and some other range of persons (about them will be below) can rent for a long period. Therefore, it is not allowed to rent apartments to tourists

It is important to know that only UAE residents and some other range of persons (about them below) can rent for a long period of time. Therefore, a landlord can only rent apartments to tourists on short-term leases.

Giving preference to short-term rentals, the owner of the apartment should take care of obtaining a license (permit) for hotel/hotel activities, comply with the standards and rules of the regulatory authorities, open a bank account, sign contracts with various sites where he will advertise his apartments and engage in daily operational activities for reservations. 

This process is quite complicated, time consuming and requires both time and knowledge of the market and laws, which is why most investors and owners of residential properties in Dubai choose to work with our management company RAD Holiday Homes Rental. We will take the property under our management and rent it out on short term rentals on our behalf. We have real estate permits, so the rental activity will be legal. 

What income can landlords expect?

In Dubai, income from property rentals ranges from 5% to 10% ROI per year. The interest rate depends on the type and category of the apartments, maintenance costs, property localization, and purchase price. A higher financial return can be achieved by renting out apartments in tourist or business districts, as well as in popular residential areas with developed transportation networks, where the demand for housing is usually higher.

Working with a management company, income from short-term rentals can be up to 15-20% higher for some properties compared to long-term rentals.

Are there any restrictions on how much a property can be rented out for?

Landlords have the right to independently decide on the rental price. There are no restrictions. However, it's important to remember that the rules for long-term and short-term rentals differ.

In the case of extending a long-term contract, if 24 months have not passed since the signing of the first agreement, raising the check is not provided for. In other cases, increasing the rental price is possible with an increase in the average market rental price, but it's necessary to consider the RERA index calculator, which indicates the average rates and the possible percentage increase in price for the given apartment.

With short-term rentals, it's possible to quickly respond to market fluctuations, there's no tie to the RERA index, and over a few years, short-term rental brings higher profitability compared to long-term rental.

Requirements for tenants in Dubai

For short-term rentals, guests are presented with a minimum number of requirements. They must fully pay for the rental period before moving in and leave a deposit in case of unforeseen circumstances from the tenant's side.

As for long-term rentals, according to current legislation, only individuals with resident status in the Emirates or legal entities can transfer property for temporary ownership on a long-term basis.

Rental agreements can be concluded with:

  • Citizens of the country;

  • Foreigners with a resident visa;

  • Citizens of the country from the GCC;

  • Legal entities registered in the UAE.

Obtaining a resident visa or registering a legal entity are mandatory conditions for concluding a long-term rental agreement. Getting a visa is not that simple. To do this, a foreigner needs to purchase property worth from one million dirhams (~$300,000), become a founder of a company, get employed in a local firm, or enroll in a higher education institution in the country.

Advantages of short-term rental

Renting out property in Dubai, like any other activity, has its pros and cons. The main advantages of short-term rental include:

  1. High income. A good location of the house, spacious layout, large area, quality furnishing, and renovation significantly increase the chance of high income. Properly selected apartments for further rental can provide a yield of up to 10% annually.

  2. Remote management. The apartment owner, who decides to rent out their apartment in Dubai on a short-term basis, has the opportunity to sign a contract with our management company, which will control the tenant, solve all operational tasks, and maintain the apartment in good condition.

  3. Payment of installments using the funds received from renting out the property. If the owner buys an apartment on installment, the income from renting out the property can be used to pay the monthly payments. However, it's important to purchase real estate at the stage of commissioning. If the purchase occurred during the construction period, the owner should focus on the project launch period.

  4. Quick exit from investments without loss in price, as the value of apartments when sold is higher by 20% or more if they are vacant and do not house long-term clients, and until the moment of sale, the apartments bring profit from short-term rental. Also, there's no need for notarial notification of the tenant 1 year before the intended date of termination of the rental contract and sale of the apartments.

  5. The possibility of personal living in the apartments for 30 days a year, just notify us of your arrival in advance, and we will block the calendar.

  6. Better preservation of real estate, as after the departure of each client, thorough cleaning and minor repairs are carried out, if necessary.

  7. Guaranteed payment for the entire rental period, as we accommodate a short-term tenant only with 100% prepayment.

  8. Damage to the property by the tenant is covered from the deposit amount, which our management company always controls with each booking.

  9. With short-term rental, it's possible to quickly respond to market fluctuations, there's no tie to the RERA index, and over several years, short-term rental brings higher profitability compared to long-term rental.

Disadvantages of short-term apartment rental

Renting out an apartment in Dubai on a short-term basis can have its difficulties and disadvantages. The most significant of these include:

  1. Seasonal fluctuations. To ensure stable income from housing, it's important to choose not only the right location and appropriate area but also a rental strategy. Our management company, RAD Holiday Homes, will always help conduct a market analysis, offer different strategy options, and promptly inform about any market changes so the investor can make the right and timely decision.

  2. The need for investment in furnishing according to DTCM standards, which initially requires additional investments but increases profitability in the future.

  3. Market volatility. The short-term rental market is more susceptible to changes than the long-term rental market. However, if considering a long-term investment strategy, short-term rental brings greater income than long-term rental, although at the moment for some projects it may be otherwise.

Before deciding on a rental strategy, it's important to consider the listed factors. It's necessary to take into account local market conditions, demand for rental housing, and financial capabilities for effective management and profit generation from real estate investment.

Types of residential rental properties

There are various types of residential rental properties. Before starting the search for suitable housing, it would be useful to familiarize yourself with the characteristics of each of them.

The most popular types of residential rental properties for short-term and long-term rental:

Apartments

Investors looking to purchase real estate for long-term or short-term rental should pay attention to studios and one- or two-bedroom apartments. Studios and one-bedroom apartments are the most popular option for renting housing. When choosing housing, it's worth paying attention to the year of construction of the building, location, and transportation connectivity. It's best to purchase real estate in areas such as:

  • Downtown

  • Dubai Marina and JLT

  • Business Bay

  • Sobha Hartland

  • Palm Jumeirah

  • Dubai Hills

  • Al Furjan

Before purchasing apartments for investment and rental purposes, we always advise you to consult with our specialists, as there are many nuances and important factors to consider to ensure that investments truly bring maximum profit.

Villas

If the amount of investment is not limited, it's worth considering purchasing a villa in popular tourist areas near the beach and entertainment. Such villas are in demand during the high tourist season, as well as among residents for short-term rental.

Hotel apartments and serviced apartments

Hotel apartments and serviced apartments are the least popular types of residential real estate for investment. Why?

  • The owner does not have a choice of Management Company and rental strategy

  • The hotel's management commission is often higher than that of Management Companies

  • In case of resale of such real estate, it takes a long time, and there's a risk of no increase in value

The yield of such a type of residential real estate is usually much lower than that of regular apartments

Features of maintaining housing for rent

Property owners who transfer their property for temporary ownership to a tenant are required to pay an annual maintenance fee for the housing. The cost of the fee is determined by the Land Department staff. The average cost is within the range of 3-30 dirhams (1-8 USD) per sq.m. Payment is transferred to the account monthly. The final cost is influenced by the location of the building, the presence of balconies, and other parameters. The annual fee includes payment for various services, from garbage removal to building security.

Also, monthly payments for electricity and water (DEWA), air conditioning (in some buildings, air conditioning is free), gas (if available) are required.

In the case of long-term rental

  • The owner pays bills for the annual maintenance of the house

  • The tenant pays all utility services (electricity, water, gas, air conditioning, internet)

In the case of short-term rental

The owner pays all bills: for the annual maintenance of the house and utility services (electricity, water, gas, air conditioning, internet).

At the same time, our Management Company assists owners in paying monthly bills from the rental income, as investors are often abroad and it's difficult to make payments.

Tip

If, after reading this article, you are interested in renting out your property in Dubai, then contact our management company, RAD Holiday Homes. We will take care of all the worries of renting out housing, and you will receive profit and all necessary reporting, no matter where you are in the world.