Dubai: Buying or renting for short-term rentals, is it worth it?

Dubai: Buying or renting for short-term rentals, is it worth it?

Dubai: Dubai welcomed 17.5 million international visitors in 2023, according to data from the Department of Economy and Tourism (DET).

This means more opportunities for homeowners and authorised tenants to jump on the holiday home bandwagon.

Industry experts assert that the short-term rental sector is lucrative, as long as investors consider certain factors. The monthly-rental market, as opposed to daily rentals, is also going strong according to data from leading property portals.

Who can rent homes out?

Individuals who own homes can rent out their properties for short-term tenants. Tenants who have authorisation from their landlords can rent out those apartments. Dubai has a ‘Holiday Homes’ system in place where homeowners and authorised tenants can register their units and get the required permits.

Individual homeowners cannot register more than eight properties on the portal unless they have a trade licence to operate holiday homes. Authorised tenants can only rent out one home at a time.

Buying an apartment

Sale of apartments and villas in Dubai are at an all-time high, and rents and prices marked major spikes in 2023. While it means you may have to increase your budget or adjust your expectations, it means better tax-free capital gains and higher ROI from rents.

If you’re considering buying a home, start with finding out what you can afford and how much you should earn.

Renting out as a tenant

If you do not want to buy and would rather rent out apartments as authorised tenants, a major limitation is that you can only do one home at a time. If you plan to run short-term rentals as a business, get a trade licence to add more than one apartment to your portfolio.

While this method gives no equity, it is relatively risk-free in the short term as there is no mortgage, no closing fees or down payment. However, such hosts will be susceptible to rental hikes which home owners would be safe from.

Area and rents

According to real estate and e-commerce portal dubizzle, luxury daily rentals were most popular in Dubai Marina, DownTown Dubai and Business Bay, and affordable daily rentals were in high demand in Bur Dubai, Al Barsha and Jumeriah Village Circle (JVC).

Dubizzle released their 2023 data showing that affordable daily rentals averaged Dh290 (Bur Dubai) for studios to Dh625 for two-bedroom flats (JVC).

Luxury daily rentals were listed on the platform at rates from Dh400 (for studios in Dubai Marina) to Dh1,906 (for two-bedroom flats in Downtown Dubai).

So, what returns can one expect?

The 2023 data from DET shows that the average revenue per available room in 2023 was just over Dh413, while listed rates ranged around Dh536. DET revealed that, on average, a guest spent three-four nights (3.8) in the city per stay.

This could mean a revenue of Dh1,570 per guest for one stay. At 70 per cent occupancy this translates to Dh8,680 per month on average.

This data is across all available rooms in the city, including hotels and serviced apartments, and is not indicative of just holiday homes.

“On average in Dubai ROI [for short-term rentals] is around 5-7 per cent. Some properties with high liquidity can bring profits of approximately 11 per cent annually,” lnara Muzafyarova, CEO of Colife Global told Gulf News.

Muzafyarova heads a company that helps manage long and short-term rental properties for owners or authorised tenants.

The rent you can expect is dependent on various factors including location, view, access to public transport and season.

Reviews, photos are key

With the wide variety of rooms available at various budgets available in Dubai, reviews are what help one stand out – John*, a Holiday Home host, told Gulf News.

“You may have the best home, best furnishings and services, but if you don’t have good reviews, your earning potential is in the tank,” Vergese added.

Several hosts are also on social media, documenting their journey and a common point with many of them is having good reviews and great photos.

“It’s also about the experience,” Nithin. A, another holiday homes host, told Gulf News. He said he arranges experiences for guests based on their interests. Nithin hosts dinner parties if both his units have guests, and if they’re open to it.

He added, “Apart from getting to know people from all around the world, such additions mean a good review and returning customers.”

Costs and effort

Maintaining multiple AirBnB homes comes with related costs including Holiday Home permits and registration, cleaning (which hosts usually add to the room rent), maintenance, and furnishing, listing on various websites, software costs and other expenses.

There is a lot of work involved in guest relations and the rest of the processes to get a unit ready for tourists.

This is where many tertiary businesses have found a place, such as Colife Global. The property management firm takes over the entire process for hosts and charges 20 per cent of revenue for their short-term rentals. For long-term rentals, the commission is 10 per cent. We found that the average rates range around 15-20 per cent for such property management firms.

Another sector that has grown with the holiday homes sector is ‘instant’ interior design and furnishing. Companies in Dubai offer complete interior design and furnishing, with turnaround times as low as two weeks, addressing the needs of business people who may not want to spend too much time in the setup of the home. Costs for these services start at Dh15,000, depending on the rooms, designs and other factors.

Software is yet another sector making money with tailored solutions for hosts. For example, Smoobu and Lodgify are platforms that enable hosts to list their properties on multiple sites while keeping track of all bookings in one platform. There are pricing tools to ensure properties are competitively priced at all times.

Holiday Home permits

The Holiday Home portal registration costs around Dh1,500 along with tourism fees – charged annually.

Permit service fee is Dh300 per bedroom in your unit plus other fees including room category fees, and knowledge and innovation fees. The annual permit service fees are capped at Dh1,200 per Holiday Home each year.

Cancellation fee is Dh70, if you want to stop renting out the home.

If you intend to start a vacation rental business, you will need a trade licence (which can cost around Dh12,000 or more depending on various factors) allowing you to engage in that activity along with DTCM approval.