As an investor in Dubai property, what’s next?
Dubai, a bustling metropolis known for its luxurious lifestyle and dynamic real estate market, offers property investors many opportunities. As the city continues to attract visitors, the question arises for homeowners and property managers: What is the best strategy for maximising returns on their Dubai investment properties? In residential real estate, the debate often centres around two primary options – long-term and short-term rentals.
What are Short-term and Long-term rentals?
Short-term rentals span from a single day up to 30 days, encompassing vacation rental homes or month-to-month leases; both registered as holiday homes with permits, these rentals fall outside Dubai Tenant rental laws. These are typically popular among business professionals and tourists looking to visit Dubai seasonally, either for work or pleasure. These properties are fully-furnished apartments, villas, vacation homes, or hotel apartments, which include utilities, parking, and cleaning services. Non-residents generally favour short-term rentals as they give them the flexibility to leave or move if they need to and pay monthly.
In contrast, long-term rentals feature a fixed annual lease term of a minimum of 12 months, which falls under RERA.
No one has a crystal ball and can know what the future holds as circumstances, plans and financial situations change, and as a property investor, you need to consider all options before opting for long-term rentals; it’s wise to have an exit plan or time frame in place as most savvy investors do.
As a Landlord in Dubai, what is Long-term Rentals – what is the Balance of Pros and Cons
One of the most significant advantages of an annual lease is income predictability; your income is unlikely to fluctuate (for better or for worse). Long-term rentals offer more stability, as renters can stay in the same place longer.
Utility Bills Paid:
Tenants bear utility costs, providing cost savings for property owners.
Less to Manage:
Reduced involvement in marketing, regular cleaning, and maintenance.
No Need to Dress the Property:
Long-term tenants often bring their furniture, reducing the need for additional investments.
Lower Set-Up Cost:
It is less expensive than choosing a short-term rental set-up cost.
A long-term Tenant in Dubai pays a % of the rent as a security deposit, assuring against any potential property damage.
Dubai Long-term Rentals – Cons
Limitations to Increasing Rent:
Long-term leases in Dubai constrain flexibility in adjusting rent prices as set by RERA.
Lower Profit Margins:
Long-term rentals may yield lower profit margins compared to short-term alternatives.
Adherence to regulations regarding property entry, applications, and eviction can be complex.
Limited Vetting of Tenants:
Despite screening of visas and passports, no other checks are still undertaken.
Higher Risk of Damage:
Long-term tenants may cause more wear and tear, challenging timely issue identification. Also, they are less likely to maintain the property in good condition. There may be a more significant risk in cost to rectify than the tenant’s deposit.
As a Dubai Landlord, you have No Flexibility, Harder to Sell:
Achieving both financial gains and personal use of one’s property is often perceived as challenging.
Bound to the current tenant by the conditions of the contract, making it harder to sell to a new investor or end user.
As an investor, you may want to capitalise on an upturn in the property market for potential financial gain. The owner has no access to the property while it is tenanted, plus limited access for new buyers to view, and may limit the selling price.
A landlord must serve a written 12-month eviction notice to the tenant upon expiry of the tenancy contract.
A landlord can only request an eviction of their tenant for the following reasons:
• If the landlord wishes to sell the property,
• If the landlord wishes to use the property himself or by a first-degree relative,
• If the property requires extensive modernisation, it would prove difficult for an existing tenant to stay during the renovation.
For these reasons, a written 12-month notice must be sent to the tenant via registered mail or notary public. The notice should be served upon the expiry of a tenant’s current tenancy agreement.
If the buyer is an investor, the present tenancy contract is valid, including all the existing terms and conditions, until the expiration of the contract with the former owner; therefore, the buyer cannot request the tenant to leave, or if the new landlord wishes to increase the rent, he must do so with accordance to the RERA index, and has to give the tenant 90-days notice before increasing the rent.
It is essential to note that the new landlord cannot increase the current rent unless the Real Estate Regulatory Agency’s Rental Calculator states this is allowed.
You can find the Rera Rental Calculator details by visiting the DLD website or downloading the Dubai Rest app.
Unless the new landlord has given at least 90 days’ notice, no alterations can be made to the existing tenancy contract. If the landlord insists on new changes, these have to be mutually agreed upon.
Short-term Rentals in Dubai- Navigating the Pros and Cons for Landlords
Allows for adaptable pricing based on supply and demand, potentially maximising income.
Higher Gross Income Potential:
Properties in tourist destinations can fetch higher prices, generating substantial monthly income.
Personal Vacation Use:
Property owners can use their vacation rentals personally and easily block dates.
More accessible to Keep up with Repairs:
Regular cleaning and maintenance make short-term rentals more manageable and keep your property in pristine condition should you wish to sell the property anytime, helping you achieve a better price than a property with a long-term tenant.
Short-term rental agreements provide flexibility, especially for owners considering selling.
Not Tied to the Same Tenant:
Avoid being stuck with a tenant who may not be an ideal fit.
Our Damage Protection Plan covers up to $5 million worth of damages caused by verified guests.
Short-term Rentals – Cons:
Consistent Income Not Guaranteed:
A risk of extended vacancies impacting consistent income.
Short-term rentals face constant competition.
Higher Operating Expenses:
Maintenance costs can be higher for fully furnished short-term rentals.
Maintenance and Repairs:
Frequent turnover may increase wear and tear, leading to higher operating costs.
Local Laws Regulating Short-term Rentals:
Stricter regulations as per DTCM compliance.
The Tiebreaker – Location and Comfort Level
The decision between long-term and short-term rentals hinges on two critical factors:
Consider the owner or property manager’s comfort with relinquishing control over an extended period.
Location! Location! Location!:
The property’s location may influence the decision, especially in a popular tourist area.
While both long-term and short-term rentals in Dubai offer distinct advantages and drawbacks, the decision ultimately depends on investors’ risk tolerance, income goals, and the effort they are willing to invest in property management. For Dubai property investors, assessing these factors is crucial to formulating a strategy that aligns with their unique objectives.
As the Dubai real estate market evolves, staying informed and adapting to changing trends will be crucial to success. Property investors should carefully weigh the pros and cons, whether opting for long-term stability or short-term income peaks, ensuring a well-informed investment decision.