Dubai short-term rentals hold value as investment property

Despite the challenges in the market, holiday homes or short term rental units still make for an excellent real estate investment product. Regardless of the market conditions, there will always be a premium for short term rentals over long term rentals, says market experts.

Mark Kennedy, co-founder and CEO of Kennedy Towers says the fundamental economics of real estate has always seen a premium associated with flexible leases. “When you factor in utilities, high-quality furniture and convenient services, that premium increases further. On average, investors will see a 50 per cent gross rental price premium by opting for short term rentals over long term rentals,” he says. “We have been able to achieve the highest occupancy rates we have seen in five years,” says Kennedy, adding that demand has increased for short term rentals in 2020.

Shine Sunny, co-founder and CEO, Raine and Horne Holiday Homes says as per performance metrics, the short-term rental (STR) sector is less impacted by the Covid-19 pandemic than the overall hotel industry. “This is mainly because staying in the units, which are mainly one and two-bedroom apartments, requires minimal physical contact with guest service personnel and other guests compared to a hotel. Also, most units are furnished and have fully equipped kitchens which attracts guests for extended periods, “ she adds.

She adds that after Covid-19, travellers have an increased sense of awareness when visiting new spaces. “Cleanliness has become a big concern for everyone looking for short term accommodation. Moreover, guests are seeking information and support, and the importance of guest relations now is more than ever.”

Therefore, for short-term rental companies, it is time to be agile, creative, and set themselves up for success when travelling booms again in the future, she adds.

Perks for investors

Khurram Shroff, Chairman of IBC Group and Gallery Suites, believes that the crucial advantage that short-term rentals and holiday homes offer investors is the ability for the property to remain flexible and responsive to sudden market disruptions. “Traditional hospitality properties are under pressure due to the global pandemic. But in the holiday home market, this has not been the case,” he says. An investment in a short-term rental can make the applicant eligible for the retirement visa based on the value of the property and it can meet the monthly income or savings criteria as well. “This flexibility makes short term rental investments a lucrative option,” explains Shroff.

His advice to investors is to take advantage of the fact that they can enter the market at varying levels of capital outlay.

Popular areas

Shroff says Dubai Marina and The Palm Jumeirah are leading in popularity among the first few post-pandemic visitors, at the moment. “With the weather cooling and Dubai being marketed as a safe destination, we are already witnessing an early resumption of bookings in these areas.”

With the rental rates dropping across the city, Sunny notes that guests now are exploring areas like the Palm Jumeriah, Downtown Dubai and JBR. These areas continue to be popular, and villa rentals in The Palm are back to pre-Covid-19 rates as there is an uptick on horizontal stays compared to vertical,” she adds. “Margins are tighter, and yields are down from pre-Covid-19 days by 15 per cent. However, they continue to be 15 per cent higher than annual rents.”

Market trends

Kennedy says, “Before the pandemic, the residents and corporate clients looked for smaller units and holidaymakers leased the larger units from us. “While tourism slowed down this summer, we saw a surge in demand from local residents for larger units and we have focused our property acquisition strategy to onboarding more villas and larger apartments to meet this demand. Since many of us are spending less time in commercial real estate and more time at home, space has become essential. Our customers are cherishing private gardens, swimming pools and more open living spaces.”

Rental rates

Kennedy says rates have adjusted this year depending on the location and type of property. “Short term rental rates for Palm Jumeirah Villas have actually increased by around 10 per cent year-on-year, whereas short term rental rates for small apartments in Dubai Marina are down by around 10 per cent year-on-year. However, it is worth noting that annual rental rates in Dubai Marina are down by around 18 per cent, so it remains preferential for investors to opt for short term rentals in this market.” Tenants are looking for flexibility right now, he adds. “Tenants who would typically take long-term rentals from us are now opting for more flexible accommodation.”