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Landlord's opinion: short-term vs long-term rental in Dubai?

03/20/2024 365
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The advantages for investors in Dubai include clear requirements for explaining the origin of funds and the ease of their transfer between countries. Transactions can be paid in cash, bank checks, and wire transfer to the seller's account.

The undeniable benefits of short-term apartment rental in Dubai is obvious if you turn to specialists. They know everything about rental choice issues, Dubai's market offers, current trends, profitability, and risks.

The landlord will receive high income, remote management, and a quick exit from investments without a loss in price while maintaining the property in perfect condition. 

Dubai Real Estate Rental Market Overview

Dubai's real estate market attracts foreign investors and wealthy people with economic stability and high rental income from residential properties. Positive forecasts are based on an analysis of economic changes and statistical data. People are moving to the Emirates despite rising real estate prices.

The rental market consists of several large groups: owners, tenants, and companies engaged in long-term and short-term rentals, the number of which has increased since the beginning of 2024.

Experts believe that the cost of short-term rentals increases by approximately 10-15% annually, allowing the landlord to increase profitability and make forecasts for several years ahead.

The growth of tourism in Dubai positively affects the housing rental market. Last year, the tourist flow increased by 18%, primarily affecting short-term rentals. Dubai is a major trade and re-export center. The GDP in the Emirates is growing annually, which ensures market growth.

Current Rental Market Trends

Dubai surprises with its growth rate: the cost of housing rent last year increased by 22%. The total number of rental contracts increased by 43% compared to 2020. Previously, the number of apartments on the rental market exceeded demand. Owners had to concede to tenants by lowering prices and extending existing long-term leases.

Now the situation has reversed. New housing is in high demand, so owners can raise rates.

In 2024, the rental cost will continue to rise with new contracts, especially in Dubai's central areas.

Due to the growth of residential real estate in the suburbs, a moderate increase in rental prices is expected, and luxury housing has become more accessible for rent. The number of new landlords has increased by 29% compared to the fourth quarter of 2023. The number of views for short-term rental housing has increased by 7.7-9.3%.

Significant rent increases are observed in areas where new residential objects have recently appeared: Sobha Hartland, Meydan, Al Furjan, and other areas.

RAD Holiday Homes Rental Company helps find solvent clients and takes on the responsibility for arranging all types of residential real estate rentals "turnkey".

Advantages of Dubai as a Place for Real Estate Investment

Purchasing real estate in the UAE for rental becomes even more attractive. Trends observed in various residential areas of Dubai indicate that investments in Dubai real estate continue to be profitable.

The preference to invest in Dubai real estate is related to high dollar returns and the absence of personal income tax on rental income in the UAE.

It's important to know: a license for this type of activity is required for short-term apartment rentals. Management companies are familiar with the situation in residential areas, their help simplifies the search for tenants, they help solve issues related to settlement and monitoring of real estate throughout the rental period. RAD Holiday Homes has been engaged in short-term rentals for a long time and enjoys a good reputation among clients. We will help manage your property "turnkey", starting with obtaining a license and ending with its rental.

Short-Term Rental

For short-term rentals, the apartment owner needs a license for the activity in compliance with the standards and rules of Dubai's regulatory bodies. It is necessary to open a bank account, sign contracts for advertising and operational activities for booking housing. For individuals, this is a labor-intensive and complex process. It requires time, experience, and a knowledge base in economics and jurisprudence.

The best way to start rental activities is to cooperate with our agency, RAD Holiday Homes. All contacts are available on our website. Leave a request or call the indicated phone number. After concluding a cooperation agreement, the rental activity will be carried out on behalf of the agency on a legal basis. The property owner can then be anywhere in the world and remotely monitor the results of the activity.

Advantages for the Landlord

High income (up to 10% annually) with a favorable location of the house, spacious layout, and good repair, as well as a growing rental market. 

Remote management allows the management company to control the tenant and solve all operational tasks in the process of short-term rental. 

Offering housing for rent is profitable already at the stage of putting the object into operation. Rental income will help cover the monthly payments of the property owner for a mortgage, loan, or utility bills. 

The landlord can personally live in the apartments for 30 days a year. For this, it is only necessary to notify the company in advance about the visit.

Confidence in the security of the property and guaranteed payment amounts for the entire rental period. The management company carries out minor repairs and thorough cleaning of the rented housing after the departure of clients. 

The ability to quickly respond to market price fluctuations, with no linkage to the RERA index. For example, if a large-scale event occurs in the city, attracting people, thereby increasing the rental market price, we can adapt to the price changes and benefit from it.

Disadvantages

Short-term rental housing requires investments in furnishing according to DTCM standards. However, this disadvantage can bring higher profitability in the future and cover the costs. 

Price fluctuations are most noticeable in the short-term rental market. However, with a proper approach, this type of rental brings good income. 

All maintenance services for the housing are paid by the landlord, but despite this, the profitability in most cases is still higher than with long-term rental.

Potential Profitability and Risks

It is necessary to choose the right strategy for renting out housing, paying attention to important factors. Local market conditions, demand for rental housing in a particular area must be considered. You can be sure your investments are safe with RAD Holiday Homes - our experts can choose the right strategy and properties for your highly profitable investments.

Long-Term Rental

Before signing the contract, both parties need to know their rights and obligations.

The contract should reflect:

  • Fixed payment cost; 

  • Rental terms and conditions, including the possibility of extension; 

  • Additional expenses that may be related to the operation and technical maintenance of the building; 

  • Liabilities of the parties.

The landlord must hand over the property to the tenant in good condition. He takes full responsibility for carrying out repair works, which should not negatively affect the tenants' use of the living quarters.

The tenant is obliged to return the property to the owner in the same condition as at the signing of the contract, excluding natural wear and tear that occurs regardless of the premises' operation. The tenant is obliged to pay all expenses specified in the contract. After vacating the premises, the tenant must cancel all changes made to the rented property.

Renting out property for a long term in Dubai can be unprofitable. And here's why: it's not allowed to evict tenants before the contract expires. Raising the rental price above the RERA calculator indicators is prohibited. Also keep in mind that only country residents and a specific circle of people can rent housing in Dubai for a long period.

Advantages for the Landlord

  • There is no need to frequently look for new tenants. 

  • The property owner receives a net profit, while the tenant pays for utility bills. 

  • If the tenant decides to vacate the premises before the end of the term specified in the contract, the landlord has the right to retain part of the rental payment.

Disadvantages

  • It is not possible to change the annual rental rate established in the contract. 

  • When extending the contract, the rate remains the same for two years. Afterwards, it's impossible to increase it by more than a percentage recommended by RERA. 

  • If the owner wants to terminate the contract, he must send a notarized notice to the tenant 12 months before the intended contract termination date. Evicting the tenant earlier is prohibited. 

  • When selling an apartment where a long-term tenant lives, its value decreases by 20-25%.

Profitability and Risks

  • The profit from long-term rental averages 3-5% annually.

  • The contract is made without witnesses and guarantors. Usually, the contract is for one year, then extended. All flexible conditions must be discussed individually.

Comparative Analysis

When renting out housing in Dubai, the annual income fluctuates in the range of 5-10% ROI. The size of the interest rate depends on the category of apartments, maintenance costs, and location. 

It is most profitable to rent out housing in:

  • Business districts; 

  • Tourist sectors; 

  • Residential areas with developed infrastructure. 

Owners of residential real estate and legal entities with a special license can rent out residential properties for a long time. For short-term rental, the apartment owner can obtain permission for the activity or entrust the management of the residential object to a specialized company, such as RAD Holiday Homes, licensed by the Department of Economy and Tourism of the UAE.

For short-term rentals on popular properties, income can be 12-15% higher compared to long-term rental.

Property owners have the right to independently make decisions on setting rental prices. In this regard, there are no restrictions in the UAE.

Owners with a long-term rental contract cannot evict tenants or raise rates. This issue is controlled by the authorities of Dubai.

It is more profitable for landlords to rent housing for a short term, as prices for new housing are constantly rising. Unlike long-term, short-term rental brings greater profit.

Until the sale of the apartments, short-term rental brings profit. There is no need to notify the tenant a year before terminating the long-term rental contract to sell the property. Thus, a quick exit from investments without loss in price is possible.

Comparison by Key Parameters:

  • Profitability (excluding capitalization of the object's value):

  • For short-term rental – in the range of 5-9% 

  • For long-term rental – in the range of 3-5%. 

Object Management:

  • In short-term rentals, the entire workload of finding clients, transferring funds, and servicing the apartments is undertaken by a property management agency.

  • For long-term rentals, contract registration is carried out in accordance with UAE regulations through the Ejari system. Registration through Ejari allows for legal recourse in case of disputes.

Maintenance Costs:

  • In short-term rentals, payments are made daily, monthly, or weekly, whereas in long-term rentals, they are made with one or several checks for the entire year.

  • In annual rentals, the tenant pays for the utility services they use, while the landlord pays for the annual maintenance and servicing of the house.

  • In short-term rental apartments, tenants pay only the rent, while the landlord pays all the bills. The management company provides services to pay monthly bills from the profits.

Expert Opinion

Long-term rental in Dubai is a common type for expatriates. Many landlords find renting out to this category of tenants profitable in terms of consistency and stability. Utility payments and municipal charges are paid by the tenant. The most important aspect to consider is carefully selecting tenants for the apartments to avoid the need for furniture restoration and repairs.

It is best to entrust the management of residential real estate for short-term rentals to a specialized company. The advantage is the ability to adjust the rental price, adapting to seasonality and achieving higher profitability. Your apartment is not tied to a long-term contract, allowing you to reside in it if necessary. The preservation of the apartment is better because thorough cleaning and minor repairs are carried out after each guest.

Recommendations from Landlords Who Have Chosen Either Strategy

Firstly, you need to decide who it is more profitable for you to rent your property to: tourists, expatriates, or businessmen. Based on this, choose the type of rental. Tourists are interested in short-term rentals, with which you can maximize profit. Long-term rentals are of interest to families with children and business representatives.

For these and other questions, you can turn to RAD Holiday Homes. A personal manager will answer any questions and assist in solving difficulties, help with the registration and promotion of your property to attract potential guests.

Our company's specialists assist in connecting your property to main communications, ensuring a flawless booking process, and managing the property after the rental deal is concluded. We offer a five-star level of furnishing, cleaning, and property servicing on a 24/7 basis. The owner has access to information about the apartments and can receive current income reports at any time in their personal account on our system.

Tip

Dubai is the perfect place for purchasing and subsequently renting out residential real estate. The size of the rental payment in short-term rentals is not controlled by the state but is set according to supply and demand.

It is most advantageous to entrust the management of the property to a prestigious company, one of which is RAD Holiday Homes. By turning to us, you will receive a detailed consultation on all the peculiarities of the real estate market.

Experienced employees of our company will quickly find profitable tenants for short-term rental of housing, thereby increasing our client's investment profitability.