Rising rents have always been a huge concern for the UAE population at some time or other. And it affects landlords and tenants, by disrupting supply and demand. Given the current trends, a rental hike at the end of the first year of the contract is widely observed.
The proposed no rental hike for three years in Dubai will come as a huge benefit for short-term rental companies. This rule will lock in landlords to a fixed rent, effectively meaning they will have a fixed upside on yields for the period.
This makes short-term rentals far more attractive for investors and landlords. These can give landlords a higher return on investment as they are rented out for shorter periods. Properties maximise the rental rate based on demand, meaning guests pay higher during New Year and other seasonal events.
Investors buying property today can expect to earn upwards of 8 per cent through short-term rentals. This despite there being start-up costs associated with buying furniture, etc.
Generally what works well for a home you want to live in does not have to do well in the short-term market. It is best to seek the advice of a professional in this case.
It is important to note that you do not have to choose between putting your property up in the short-term market or a long-term rental. The short-term model is far more fluid and can, in a worst-case scenario, also be used as a stopgap arrangement.
So if you have multiple properties in a building, or being a developer, you can always use the short-term market to help dilute your portfolio if that is the aim.
Looking to the other side, due to the many handovers of properties happening, rental rates are in steep decline. A freeze on rental hikes will benefit landlords from dropping their property value just to ensure that the yields provide the desired returns. It secures his income for those three years.
Investors with multiple houses in their portfolio will prefer short-term rentals for a few owing to the benefit of high turnover rates. And the proposed no-rental hike may nudge them to increase the number of properties they choose to rent out short-term.
The real estate industry is moving towards a shared economy. The attraction of benefits from underutilised assets will also help promote short-term rentals. With the support of technology, it makes it a comfortable option for landlords to market and manage.
Short-term rental market is nothing new, but in the recent times with the rise of online portals, there is more visibility and awareness about the same.
With the support of regulatory frameworks, short-term rental companies will find it easier to get more properties on board and market them effectively. In addition, they provide gains even for assets that are not utilised properly.
It is to be remembered that short-term rentals are not an alternative to long-term. It can work hand-in-hand.
Vinayak Mahtani is CEO of bnbme.
