Why short-term rentals are a win-win for landlords
Landlords in Dubai are increasingly considering short-term rentals. This helps them reduce void periods on their properties as well as achieve higher overall returns. They can also do away with the hassle of one-year tenancy contracts and instead sign on tenants even for a few days.
This is also good news for the wider property market as it can help absorb new supply being handed over by developers. Businesses are sprouting up across the UAE catering to the short-term rental market.
"There is huge growth in short-term rentals all over Dubai. The earning potential is between 25 to 40 per cent above a long-term let and sometimes even more due to the low property prices. Further to this, there is great flexibility in short-term letting for the landlords - no long-term tenants to evict and ability to use your property when you want," says Anna Skigin, founder of Frank Porter, a property management company.
"In the UAE, we are currently at an early adopter stage for short-term rentals. In 5 years, the majority will rent short-term. The financials make a lot more sense as does the flexibility and sustainability of the property," observes Vinayak Mahtani, CEO of bnbme, a holiday home management company.
Demand for short-term rentals come from both leisure tourists as well as the corporate traveller. It depends on the season, price and location of the property.
"We have properties which are occupied by first-time visitors looking for a job, families getting ready to leave to holiday makers and even celebrities. We had film stars as well as famous footballers stay at our properties," adds Mahtani.
The average rate varies from property type to location and time of the year. "We have a property which goes for $50 a night to a property which goes for $2,500 a night," informs Mahtani.
For properties managed by Frank Porter, the daily rates range from Dh250 to Dh300 for a studio to Dh4,000 for larger villas. The highest earning areas are Dubai Marina, Jumeirah Beach Residence and Downtown Dubai. However, other areas are beginning to catch up.
"We are seeing growth of short-term rentals all over Dubai in areas such as Business Bay, Sports City, Jumeirah Lakes Towers, Jumeirah Village Circle and areas closer to the Expo site," adds Skigin.
The short-term rental yields for villas are higher. This is because they operate in a space that hotels for the most part do not. So, popular spots on the beach that have villas have done better with short-term lets, outperforming the longer term rental yields by 2 to 3 per cent, say industry commentators.
Benefits that accrue from short-term letting are a function of location as well as rates.
"With the 'airbnb' effect now commonplace, the prime tourist spots are the ones that attract the most interest and occupancy but it is worth keeping in mind that these locations are also competing with hotels in an increasingly competitive framework. This makes the end result largely dependent on the type of tenant one is looking at as well as the rates that are on offer. For the corporate traveller, location becomes more paramount but this need not be the primary hotspots that are so critical to the tourist market. Dubai offers a plethora of choices and for the most part, various markets are served from the price-conscious traveller to the luxury tourist," says Sameer Lakhani, managing director, Global Capital Partners.
Property owners need to furnish the property to an accepted level before being let out short-term. Also, every apartment needs to have working Dewa, chiller and working Internet.
"Other costs include licensing with the Department of Tourism and Commerce Marketing that ranges between Dh370 to Dh1,200, depending on the property's size, as well as home insurance which ranges between Dh500 to Dh1,000 per year," says Frank Porter's Skigin.
The services that are offered is a function of the market that is being targeted.
"At the higher end, services include daily room cleaning and linen services, as well as high-end furniture; this will then compete with the five star hotel offerings. A number of five star hotels also offer apartments where landlords can capitalise on the 'spillover' demand that hotels have. These hotels offer to manage these apartments in exchange for a percentage of room revenue. For the most part though, the offerings come in at lower levels than what is being offered by hotels," explains Lakhani.
Airbnb and short-term rentals are much less expensive than hotels and offer more space and a 'home-like' environment that appeals to modern travellers.
"A comparison of rates to hotels is not accurate. Staying in a hotel is like travelling a commercial airline whereas staying in a holiday home is like flying a private jet, not in terms of the pricing but in terms of the bespoke experience. After all, you can also fly a small private plane much cheaper than first class. But it's the bespoke factor which is the difference," comments bnbme's Mahtani.
Referring to competition from Airbnb, Mahtani says bnbme is a property management company with hospitality experience. "We use Airbnb as one of our online travel agents."
Bnbme has recently started working on villas in India, the firm's first properties outside Dubai. It is also speaking with developers in Abu Dhabi and Ras Al Khaimah for short-term rentals.
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