The future of Dubai real estate has never seemed brighter. You’ve probably heard this said before, and you’ll hear it said again in the future because it’s true.
If you have property for rent in downtown Dubai (or any other popular neighborhood in Dubai), you’re in luck because of the rising real estate prices. If you have money to spare, consider investing it into the Dubai real estate market, then turn your property into a rental.
The Thriving Dubai Real Estate Market
The intersection of robust market dynamics and consumer demand translates to tremendous opportunities in the Dubai real estate market.
A recent report by The National News says that in the year leading up to April, apartment prices surged by 14.5% to AED 1,256 ($342) per square foot. Villa prices have also seen an upswing of 14.9% to AED 1,484 ($404) per square foot in the same period. The active off-plan market, which offset the subdued momentum in the secondary market, is primarily driving this growth.
The rental market is likewise thriving. The average rent has increased by more than 25% in the year leading up to April 2023. Specifically, the average apartment rent grew by 25.7% and currently stands at AED 102,675 ($27,954), while the average villa rent accelerated by 26.1% and stands at AED 308,616 ($84,023).
The visa initiatives of the United Arab Emirates may have contributed to this double-digit surge in average rents. They are attracting digital nomads, entrepreneurs, skilled workers, and venture capitalists from all over the world to Dubai, fueling the demand for rental properties and, in turn, driving up rent.
All in all, the value of property deals in Dubai in the prior year was AED 528 billion ($143.75 billion), a staggering uptick of 76.5%. Indeed, even if the real estate market expansion slows in the coming months, rental properties remain a lucrative avenue for real estate investors in Dubai.
Additionally, apartments and villas are both excellent real estate investment options. The villas market is growing faster than the apartments market, so it’s not wrong to say investing in rental villas may be a better option, but not by a lot.
Long-Term or Short-Term Rental?
Once you have a property to rent out, you’ll need to decide whether to turn it into a long-term or short-term rental. Each type has different legal ramifications.
Long-Term Rental Legal Considerations
Long-term rentals require less work but also come with greater legal responsibilities.
For instance, long-term rentals do not allow for instant rent termination, at least not without expensive legal consequences. You cannot suddenly ask a tenant to move out because you need the apartment. The law requires landlords to give long-term tenants at least 12 months’ notice when they wish such tenants to live.
Long-term rentals are also subject to rent controls, so you cannot indiscriminately raise your rent. This means you must be extremely cautious about setting rent correctly the first time — thus, the importance of a comparative market analysis, especially for first-time landlords.
For future reference, the amount by which you can increase rent will depend on the average market rental rate for properties similar to yours. Specifically, if the rent you’re charging is below the average rental rate for similar properties by:
- 40% or greater, you can increase the rent by up to 20%.
- 31% – 40%, you can increase the rent by up to 15%.
- 21% – 30%, you can increase rent by up to 10%.
- 11% – 20%, you can increase rent by up to 5%.
- 10% or less, you cannot increase rent.
Short-Term Rental Legal Considerations
Short-term rentals are not subject to rent caps, and you don’t need to provide a minimum of 12 months rental termination notice.
However, short-term rentals must be registered with the Department of Tourism and Commerce Marketing. You can do this yourself, in which case you’ll need to register as the rental operator.
Otherwise, you can get your property listed with a real estate agency that can serve as your short-term rental operator. It will register your property with the DTCM on your behalf.
If you decide to do it yourself, you’ll get the entire rental income. However, you’ll also have to take care of all the nitty-gritty details and all the expenses associated with running transient accommodation.
You have to advertise your property in holiday rental listings and pay for the requisite advertising fees. You’ll need to find tenants, hire and pay for cleaners, take care of tenant rotations, and be available for regular DTCM inspections.
Listing and Administering Rental Properties
You have three main options when it comes to listing and administering your rental property.
1. List with an Agency
Get your property listed with a real estate agency. The agency will market your property, show your apartment, and find you a tenant. Then, you can sign the contract with the tenant and register in Ejari yourself.
2. List With an Agency and Obtain Limited Management Service
You may also list your property with a real estate agency and obtain limited management services. In this case, your real estate agency will not only market your property but also show it to potential tenants, get the contract signed, register the contract in Ejari, and hand over the property to your tenant. The agency can also be in charge of renewals.
3. List With an Agency and Obtain Full Management Service
You may also opt for full property management. In this case, you can delegate everything to your real estate management company.
Your designated real estate company with full property management rights can prepare your property for letting, get regular air conditioning service and take care of all other necessary maintenance, list it, rent it out, hand it over to the tenant, collect rent, conduct regular inspections, and many other things besides.
Do You Need Professional Help?
Seek professional help if you want maximum convenience. Do not do so if you want maximum income. In other words, it depends on your priorities, particularly how much time and effort you wish to spend administering and maintaining your property and how much income you’re willing to share with a third party.
For both short-term and long-term rentals, a real estate agency that provides management services can help with maintenance, tenant checks, due diligence, and all the myriad things that require a landlord’s attention. They can also take care of listing and marketing your property.
Regardless of which option you choose, make sure you work only with a trustworthy real estate company.
