The real estate market in the United Arab Emirates sets new records year after year, and in 2023, it grew by tens of percent. This growth is expected to continue next year as the Emirates confirms its reputation as a global business center. This factor, together with tax benefits and quality of life, attracts wealthy people from all over the world, increasing the demand for real estate and rental rates.
However, rental yield depends on the chosen strategy: short-term or long-term rental.
Short-term rentals are popular mainly among tourists, who find apartments more comfortable and profitable than hotels. In the UAE, between 5 and 17 million people rent apartments for a few days or weeks every year. Impressive number!
Short-term rentals are also in demand among businessmen or company employees who periodically come to the UAE on business trips for a week or two.
For these tenants, location plays a key role. You can expect constant demand only in good areas of Dubai, and to a lesser extent in Abu Dhabi and Sharjah. The most popular areas in Dubai are Dubai Marina, Jumeirah Beach Residence, Downtown Dubai, Bluewaters, and Palm Jumeirah. Business Bay, Jumeirah Village Circle, Jumeirah Lakes Towers, and Meydan were also added to the list in 2023.
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To rent out real estate for short-term rent, the owner must obtain a license for this activity. If you don’t want to do this yourself, you can contact a management company or a professional operator with a license for short-term rental. The intermediary will rent out housing on his behalf, but in this case, the owner will have to pay from 10 to 20% of the proceeds as a commission for the operator’s services.
Among the advantages of short-term rentals is the ability to adjust prices depending on the season.
Another disadvantage is that all costs for services must be paid by the property owner, including utility bills, internet, cleaning, furniture, and plumbing repairs, as well as maintenance of utility networks.
On average, real estate with a short-term lease pays for itself 1.5–2 times faster than with a long-term lease. The average annual yield from short-term rentals ranges from 11% to 14%.
Long-term rental is the most common and transparent form of rental in the UAE. For example, in Dubai, more than 80% of the population are expats, and many of them prefer to rent a home. Typically, long-term rentals are targeted at families with children or those who come to work in Dubai for a year or more.
When purchasing real estate, it is advisable to present a portrait of future tenants and take into account their needs. For example, for families with children, the presence of kindergartens or schools in the surrounding area is important, so it is worth choosing projects with the appropriate infrastructure. Two-bedroom apartments are usually more in demand among these tenants, while young IT professionals will prefer housing closer to their place of work, perhaps a small studio.
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When concluding long-term contracts, the relationship between the owner and the tenant is regulated by Law No. 26 of 2007. The lease agreement must be registered in RERA’s electronic system Ejari – only such an agreement is legally binding.
One of the advantages of long-term leases is that the contract is usually for a year or more, which eliminates the need to constantly search for new tenants. At the same time, the owner receives a net profit, since the tenant pays utilities and service fees.
The disadvantage is that you cannot change the rent yourself. When extending the contract, the owner does not have the right to increase the rental price if two years have not passed since the conclusion of the first contract. After this, the rent cannot be increased by a higher percentage than the recommended RERA index. This measure is aimed at regulating the growth of rental rates. Owners can calculate the average market price of rental housing and the permissible limit for rent increases using a special service from the Dubai Land Department – Rent Increase Calculator.
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In general, when renting for a long time, you should be more careful when choosing tenants, which will help avoid additional risks and costs for repairs and restoration of furniture.
Profit from long-term rentals varies from 4.3% to 8.4% per annum. The best option would be to independently search for tenants and agree on all terms directly with them.
