A conversation and a bit of maths is all it took for Jorge Felippe to realise why short-term rentals can be more profitable for Dubai landlords than annual lease contracts.
“In 2021, a friend of a friend doing short-term rentals in Downtown Dubai told me that for the one week around New Year’s Eve, he rented his two-bedroom apartment for Dh50,000 [$13,614],” the British investment manager says.
Rented by the year, the apartment could fetch Dh160,000, he says, describing the venture as an example of a great business opportunity.
Inspired, Mr Felippe followed suit when he bought a one-bedroom apartment in the Lofts Downtown for Dh1 million in 2021.
“Back then, the year-long lease was Dh80,000, but my goal was to make higher returns. With short-term rental, I had a net income of Dh165,000 per year after utility bills and property management fees,” Mr Felippe says.
Last year, the potential yearly rent for his Lofts apartment was Dh110,000 per year, while the property was valued at Dh1.5 million, he adds.
“So, I am still benefiting from the higher yield of short-term rentals, with agents calling every other day asking if I want to sell it,” he says.
Mr Felipe has now launched Ultimate Stay, a specialised boutique company for holiday lets. It has more than 50 units across Dubai on its books, mainly in the Downtown, Port de La Mer, Marina and Palm Jumeirah areas.
“Most of us will have our largest investments in properties we own and, therefore, you need a great manager to look after it and make the most yield out of it,” he says.
Renting out an investment property can provide a good source of secondary income. But, as it the case with Mr Felippe, an increasing number of UAE landlords are finding that short-term lets bring in more money while providing a greater degree of flexibility.
20 per cent higher rental returns
For Arshia Shroff, 28, a director at the Regal Group, the short-term route was a way of maximising her income in view of the emirate’s popularity with tourists and remote workers.
“Our apartment’s location in Downtown made us realise we could maximise our rental income by adapting to the current market dynamics, rather than adhering to a fixed, long-term rental model,” the Indian citizen says.
She says the switch could earn her 20 per cent extra each year.
Ms Shroff rents her one-bedroom apartment through Silkhaus, a home-grown start-up offering serviced apartments for short stays. It was launched in Dubai in 2021 and has expanded into Abu Dhabi, with Saudi Arabia next on the list. In 2022, the company raised $7.75 million in seed funding.
Silkhaus works with individual landlords, offering properties ranging from studio flats to villas.
Like a property manager, it handles bookings, guest relations, maintenance, income management and sales, says Patrick Weiss, the company's head of real estate for the Mena region.
“The owner has peace of mind knowing their unit is achieving results, with very little input required. Our tech team has built proprietary tools to boost revenue optimisation and provide real-time information transparency for asset owners,” he says.
“Our flexible approach allows landlords to list their assets with us while having the freedom to use their property when needed.”
On average, property owners on Silkhaus earn between 20 per cent and 40 per cent more than long-term rents, Mr Weiss adds – although that depends on the area and the quality of the unit.
The model also appealed to Alexander, 35, a business and systems analyst in Dubai who asked that his surname be kept private.
Besides the higher income, he appreciates outsourcing the administration while retaining the flexibility to use his apartment when he wants it.
“You even get your money remotely,” he says. “[In addition], you can block dates for yourself, and if you are using your apartment during the low season, your lost income would be almost zero,” he says.
More landlords have converted annual leases into short-term rental properties, according to a November report by Asteco.
Citing data from the Dubai Department of Economy and Tourism, the real estate company reported a 45 per cent yearly increase in the number of registered holiday homes in Dubai, as of March 2023.
Chestertons Go, the holiday lettings arm of the international real estate advisory, also reports sustained growth in the market.
“Increasing numbers of visitors to Dubai, coupled with new arrivals moving to the city, translates into more demand for short-term rentals – for holiday purposes or temporary accommodation while settling in,” says Aneela Bibi, Chestertons’ head of short-term lettings.
“People rent short term because they often want a temporary base that feels like a home, [such as] an apartment/studio as opposed to a hotel room,” she adds.
Renters look for proximity to a Metro station, easy access to shopping malls and other Dubai attractions, Ms Bibi says, as well as the quality of the accommodation and the amenities it offers.
Rules for renting out a holiday home in Dubai
Landlords looking to rent out their properties for short periods must do so in line with the DTCM’s guidelines.
Individuals can also choose to register real estate units as holiday homes. Among other documents, they must provide a copy of the title deed, written authorisation from the owner and a recent Dubai Electricity and Water Authority bill. All holiday homes must be furnished.
Landlords choosing to list their properties with online aggregators may have to comply with additional requirements from each platform.
Each has its own policies and landlords need to do their due diligence before deciding on a platform.
Didem Uzel, 37, an Irish citizen in Dubai, owns five properties in Dubai Marina, The Palm Jumeirah, Business Bay and Emaar Beachfront, which she rents with Chestertons.
“Some short-term rental agencies do not provide landlords with clear records and an online dashboard for them to track their units’ performance,” she says. “Finding the right agency to work with is very important.”
Then there are furnishing expenses. Short-term renters generally expect hotel-standard interiors – although expensive furnishings can command a premium, one landlord explains, speaking anonymously for privacy reasons.
Watch: Property prices in the UAE so high you need a helicopter to visit
Expert view
Landlords eyeing higher returns in the short-term market should also consider the financial aspects.
Keren Bobker, a senior partner with wealth management advisory Holborn Assets, points out that you may not find enough customers to cover your costs.
“There are also no guarantees that you will always have tenants,” she says.
In such cases, you need to ensure that you manage your cash flow so that if the property is not let for a period of time, you don’t have any financial difficulties, she adds.
She also advises checking for permissions, such as with the building owners or community managers and in the mortgage terms and conditions.
There are also higher costs involved. Short-term tenants’ higher expectations mean the property must be in top condition year-round.
“While the rental income will be higher for short-term lets, the expenditure is also higher. There are the cleaning and management costs, the time required to oversee tenant changes and if you pay a company to do this, the costs are more for the level of ongoing work,” Ms Bobker says.
As always, doing the maths helps.
