The Short Term Rental (STR) market has found mainstream appeal across the UAE. With prime markets identified in areas such as Palm Jumeirah, Dubai Marina and Downtown Dubai, Dubai landlords have expressed renewed enthusiasm for Short Term Rentals, as they scramble for alternatives to struggling long term rents. Though Short Term Rentals have many potential upsides, it is difficult for some to envision a change from the tried and tested model of long term rental contracts. This post will outline the Pros and Cons of both Long Term and Short Term Rental contracts to help you decide what is right for you.
Long Term Rental Contracts
Pros
Red Hot Rental Market - Over the last two years, the long-term rental market in Dubai has seen significant growth. Rental prices have surged by as much as 25.8% in some areas, driven by high demand and limited supply . This trend has made long-term rentals particularly attractive for landlords looking for stable income.
Updates in RERA Calculator - The Real Estate Regulatory Agency (RERA) updated its rental index calculator effective March 1, 2024. This update allows for more accurate rental value assessments, ensuring landlords can maximize returns. The calculator now dictates specific permissible increases based on how much below market value the current rent is.
Example 1: No Increase Scenario
Current Annual Rent: AED 50,000
Market Value: AED 52,000 (4% below market value)
Permissible Increase: Since the current rent is less than 10% below the market value, no increase is allowed.
Example 2: Increase Scenario
Current Annual Rent: AED 50,000
Market Value: AED 90,000 (44.44% below market value)
Permissible Increase: The rent can be increased by a maximum of 20%, resulting in a new rent of AED 60,000.
Predictable Income and No Upfront Costs - One of the biggest advantages of an annual lease is income predictability. Your income is unlikely to fluctuate (for better or for worse) and you know exactly when you will be receiving your money and can budget accordingly. Long-term rentals generally do not require the landlord to furnish the property, reducing upfront investment and ongoing maintenance costs as well.
Cons
Tenant Related Problems - Unforeseen circumstances, especially in a fluctuating job market, can see long term tenants getting evicted or absconding - causing numerous problems for landlords. Finding a new tenant - or worse, spending time in court - can sometimes take months, leading to untold financial losses due to lost rental income / attorney fees.
Landlords in the UAE have seen an increasing number of bounced checks, so much so, that it is now no longer illegal for a check to bounce due to insufficient funds in the UAE. This can further be attributed to the tumultuous times we find ourselves in and requires landlords to carefully screen their tenants and/or diversify their risks (more on that later).
Prime Location Rents Slowing Down: While rents in prime locations like Downtown Dubai and Palm Jumeirah saw astronomical increases over the past couple of years, this growth has now started to plateau or even decline. This slowdown makes STRs a viable option again, as they often generate higher income in these high-demand areas .
For landlords who are already struggling, the rent freeze has caused many landlords to consider Short Term Rental, given there is no cap on rental income.
No Flexibility - In the real estate market, achieving both financial gains and personal use of one's property is often perceived as a challenging balance to strike. Long-term rental contracts lack flexibility. Landlords are typically locked into leases that can last for a year or more, limiting their ability to sell the property or use it for personal purposes. Given the One year notice to tenants is mandatory, landlords are locked in and cannot capitalize on the dynamic nature of the real estate market. This makes STRs an attractive option, particularly for individuals with strong connections to Dubai, as it allows them to capitalize on their property's potential for financial gain while having the freedom to use it whenever they visit the city. The ability to maximize income during periods of absence and enjoy personal use when desired creates a win-win scenario for property owners seeking the best of both worlds in the dynamic Dubai real estate market.
If a long-term rental strategy aligns with your goals but you prefer professional management, connect with our trusted experts to ensure your property is in good hands. Contact us today to learn more about our comprehensive property management services!
Short-term rental contracts
Pros
Higher Income - We’re in the business, we see the trends, short term rental all but guarantees a higher income when looked at from a yearly perspective (for most properties). Short Term Rentals in prime locations such as Dubai Marina and Palm Jumeirah tend to generate higher income compared to long-term rentals. Tourists are willing to pay a premium for short stays in these desirable areas. Let’s look at an example of short term rental vs long term rental returns.
A 5-bedroom Palm Jumeirah villa under a Long Term Rental contract can make around AED 1,000,000 per year. However, in our experience, similar properties can earn AED1.3 million every year leveraging a Short Term Rental strategy! There are some additional costs, which can drag this number down by a small amount. Payments need to be made to cleaners, maintenance managers and Online Travel Agents (OTAs - like Airbnb). However, even after deducting costs, MANY properties tend to make significantly more with short term rentals.
Flexibility - The Short Term Rentals model offers unrivalled flexibility, especially if you live in a different emirate or country. For many of our clients, the flexibility to use their property as and when they like, is the deciding factor to implement a Short Term Rental strategy.
Short Term Letting also offer landlords the flexibility to sell the property which is particularly appealing for those who do not want to be tied down by long-term leases and want to be able to capitalize on the dynamic nature of the real estate market in Dubai.
Improved Property Maintenance - This may come as a surprise given how much press there is around wild parties at some Airbnb Properties (read our post on host protection), but a well run Short Term Rental property will have far better upkeep than a Long Term Rental arrangement in the vast majority of cases.
The average length of stay in a Short Term Rental is 5-7 days. Every time a new guest arrives, the cleaning and maintenance team does a 10-point check of the property (supported by over 30+ photos taken every turnover). Everything from leaks under the sink, to problems with the AC are checked quite literally every week.
It may be counterintuitive, but a well run Short Term Rental is kept in tip-top shape and is almost always in better condition than a Long Term Rental.
Pro Tip: If you’re a landlord looking for reputable property management companies in Dubai, be sure to check-out the reviews of your prospective Operator on Airbnb. Any sign that guests aren’t happy is likely an indication that your property may not be kept in ideal condition.
Cons
Requires Management - Let’s be honest, Dubai is a major tourist destination and the Short Term Rental space in Dubai has become extremely competitive. In fact, As of 2024, the Active number of units as mentioned on Valustrat is around 24,000! It may seem easy to snap a few photos and create an Airbnb listing - and in some ways it is. However, guest communication, turnover management, revenue management (critical to maximizing your rental income) and various other day-to-day tasks can become a real slog. For this reason, it's almost always beneficial to hire a professional, reputable operator. Your pocketbook (and your sanity) will be grateful you did.
Requires Furnishing - Furnishing a property can be super time consuming and tedious! The process can take around 2 to 3 weeks, and it almost always implies several trips to Ikea (or other furniture stores). Luckily, most reputable Short Term Rental Operators will offer the interior design, furniture procurement and outfitting free of charge (the owner obviously pays for the furnishings and any maintenance costs).
Pro Tip: Make sure you look at an operator's portfolio of properties to get a sense of their design aesthetic. The last thing you want is a property full of furniture you’re not a fan of!
Local Laws & VAT - The Short Term Rental space is highly regulated in Dubai - check out our post on the Legal Requirements of STR here. Without a professional operator, understanding and complying with local laws can be quite overwhelming and time consuming.
Additionally, landlords must account for VAT, which can affect the profitability of their Short Term Rental. However, properties earning a net revenue of over $100,00 or 365,000 AED are only affected by this.
The Bottom Line
Choosing between short-term and long-term rentals in Dubai depends on your specific goals and circumstances. Long-term rentals offer stability and predictability, making them ideal for landlords seeking a steady income without the hassle of frequent tenant turnover. On the other hand, short-term rentals can provide higher income and greater flexibility, especially in prime locations, but they require more hands-on management and a higher initial investment.
Evaluate your priorities, resources, and the specific market conditions in your target area to make an informed decision. Whether you opt for a long-term or short-term rental strategy, staying informed about market trends and regulations will help you maximize your investment's potential.
However, finding a professional, reputable STR operator is critical to realizing your Real Estate investment goals, if you choose to shift to a STR model.
If you'd like to learn more about why the Short term rental market is set to thrive in Dubai, check out our blog post on the topic here.
Comentários