Which is More Profitable: Short-term vs Long-term Rental in the UAE

8:55 pm  |  15.07.2024

The real estate rental market in the UAE is breaking records year after year and has grown by tens of percent in 2023. The momentum will continue this year as the Emirates confirms its reputation as a global business hub. This factor, as well as tax preferences and quality of life, attract wealthy people around the world here, which increases the demand for real estate and rental rates.

However, rental yield depends on the chosen strategy: short-term or long-term rental.

Short-term Rental

Short-term rentals are popular mainly among tourists, who find the apartment format more comfortable and more profitable than a hotel. In the Emirates, between 5 and 17 million people rent apartments for a few days or weeks each year. Impressive number!

Short-term real estate is in demand among businessmen or company employees who periodically come on business trips to the UAE for a week or two.

What to Consider When Buying Real Estate?

Location plays a key role for such tenants. You can count on constant occupancy of the facility only in good locations in Dubai, and to a lesser extent in Abu Dhabi and Sharjah. 

In Dubai, the most popular areas are Dubai Marina, Jumeirah Beach Residence, Downtown Dubai, Bluewaters, Palm Jumeirah; in 2024, the list will be expanded to: Business Bay, Jumeirah Village Circle, Jumeirah Lakes Towers, and Meydan.

What Should You Do Before Submitting?

To rent out an object for a short term, the owner is required to obtain a license for this activity. If you don’t want to fill out this document, you can contact the management company or a professional operator who has a license to operate short-term rentals. 

The intermediary will rent out housing on his own behalf, but in this case, he will have to spend 10 to 20% of the proceeds to pay for the operator’s services. rental cost.

What are the Advantages and Disadvantages?

Among the advantages of short-term rentals is the ability to adjust prices depending on the season.

The main disadvantage is the inability to calculate profitability in advance because many factors influence the number of people willing to rent a house for a short period. For example, seasonality.

Another disadvantage is that the homeowner has to pay for all services. Among them are the Internet, cleaning, plumbing, and utility networks.

READ: Preserve and Increase Capital: 5 Compelling Reasons to Invest in Real Estate in Dubai

What is the Profitability?

On average, real estate for short-term rental pays off 1.5–2 times faster than for long-term rental. The average annual profitability of short-term rentals is between 11–14%.

Long-Term Rental

Long-term rental is the most common and understandable type of rental in the UAE. Thus, in Dubai, more than 80% of the population are expats, and many of them prefer to live in rented properties. Typically, long-term housing is rented by families with children or those who come to work in Dubai for a year or more.

What to Consider When Buying Real Estate?

It is advisable at the purchasing stage to present a portrait of future tenants and know their needs. For example, for families with children, the presence of a kindergarten or school will be fundamental, so it is worth choosing projects where infrastructure for children has been created. Such tenants are more in demand for apartments with two bedrooms, but a young IT specialist would be more willing to rent a residential apartment next to his office and it would be a small studio.

What to Do Before Submitting?

In 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 Ejari electronic system – only in this case the agreement will be legally binding.

Each registered contract is assigned a unique barcode for the entire duration of its validity. Registration is free, and both the landlord and the tenant can register a rental agreement.

What Are the Advantages and Disadvantages?

The advantage is that with a long-term lease, the contract is usually concluded in a year or several years – there is no need to look for new tenants every time. The owner of the property receives a net profit – utility bills and service fees are paid by the tenant.

The downside is that you cannot change the rental rate without permission. When extending the contract, the owner does not have the right to increase the rental price if two years have not passed from the date of conclusion of the first contract. Further, the rental rate cannot be increased by a percentage greater than the recommended RERA index.

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This measure is intended to regulate the growth of rental rates. Owners can calculate the average market price of rental housing and calculate the permissible limit for increasing the price in a special service from the Dubai Land Department.

In general, when renting for a long time, you need to be more careful in selecting tenants. This will protect you from additional risks and expenses for repairing and restoring furniture.

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What Is the Profitability?

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.

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