Dubai: Landlords in Dubai are using short-term rentals to their advantage. To make full use of increasing demand ahead of the Expo... and prepare themselves for Dubai’s upcoming law on a three-year rent freeze on new leases.
“Offering their properties as short-term lets rather than one-year leases, landlords will have better control of what they need to do next once the Rental Law comes into effect,” said Dr. Ahmed Samerai, founder of Al Bahar Downtown Apartments, which operates in the short-term letting/holiday homes space in the Downtown Dubai area.
“Landlords don’t want to be caught in a new contract when the Law comes in – especially when the property market is picking up and more people are thinking rents too are likely to go up. At least in the luxury space.”
Dubai has drafted a new Rental Law, which provides three-year rent freeze on all new rental contracts. This is to give ample protection to tenants against sudden rent increases demanded by landlords.
This is what landlords are doing – sign on tenants on flexible one- or three-month contracts and which will be renewed as long as both parties are comfortable with the situation. There is sufficient demand too for short-term leases. With uncertainty over flights and the global COVID-19 situation still rife, multinational companies prefer to base their project teams here on short-term leases rather than take out full-year contracts.
“We secured a tenant from a leading Chinese multinational for a penthouse at the Downtown,” said Samerai. “The deal is structured in much the same way as a long-term lease, including a security deposit, but the contracts are renewed every three months.”
U-turn in fortunes
The short-term/holiday home property market in Dubai went through a most difficult phase in the second and third quarters of 2020 with COVID-19 paying a visit. The postponement of the Expo meant landlords and property management firms were suddenly hit with cancelled bookings. At one point, there were some landlords thinking of pulling out from the short-term leasing market and focusing on giving their properties for standard one-year rents.
But industry sources say such a downbeat mood was temporary. “There were a few landlord dropouts immediately after COVID hit - there is always a fraction of people taking the first exit when things are unclear,” said Mahwussh Alam, co-founder of One Perfect Stay, which operates 150 units in Dubai and plans to raise this to 500 in the near-term. “It was more of a fight-or-flight mode, but there is no real data or anecdotal evidence which is significant enough to indicate that landlords were losing trust in short-term rental market as a whole.”
It's on the flexibility that short-term rentals are winning these days - flexibility for landlord and tenant alike
The new circumstances created by COVID-19 also brought in a rethinking among landlords… and tenants. Again, short-term residential arrangements benefits from such a switch.
“The majority of landlords recognise that the line between conventional long-term rentals and the short term/holiday home market has blurred,” added Alam. “One cheque - or even four cheque payments - are uncommon in today’s market which is now living with a new normal of 12 cheques. The notion is obsolete and irrelevant in the current scenario where tenants can benefit from the flexibility of short-term rental offers.
“Tenants can easily save 15 per cent on upfront costs, which include agent’s commission, moving costs and utility overheads. The short-term rental audience has become much broader to include UAE residents looking for flexible payments… instead of long-term commitment. And the tourist is choosing a holiday home/short term rental because of benefits such as space and privacy.”
Building up nicely
Demand since July of 2020 has been on the mend, with landlords and operators focussing on pulling in demand from residents rather than waiting for tourists to fly back in again. This was the first phase of the recovery and which continues to this day. But with the Expo less than 100 days away, a new wave of demand for short-lets is on the horizon, according to operators.
In this second act, short-term stay operators will be competing head-on with hotels. For a visitor coming to the Expo – whether as an exhibitor or just looking at new business opportunities – short-let properties can offer compelling rates compared to what hotels could charge. Moreover, short-term rentals are still to recovery fully from the COVID-19 crisis.
“Demand has actually increased in terms of occupancy, which shot up to 90 per cent after June 2020 and the length of stay has also increased,” said Alam. “However, the ADR (Average Daily Rate) has dropped 25 per cent from 2020 to 2021. [But] overall, the net effect on returns for the investor remain the same. This is the beauty of a seasonal business that will rebound.”
At the end of 2019, the number of active short-stay or holiday home listings in Dubai were 10,766 out of a total of 20,395 properties registered on Airbnb. At the time, the property consultancy Knight Frank reckoned Dubai's holiday home market accounting for 2 per cent of Dubai's overall number of homes - and the highest proportion among key global hub cities.
After the COVID-19 reality check of 2020, those numbers would have seen some changes, but nothing drastic, multiple industry sources say. And in 2021, new listings are again on the rise, either direct from developers who want too want to make full use of the Expo possibilities. Plus, those homes put up by investor-landlords.
“Short-term rental is not only a tourist-centric business, especially after COVID-19,” said Alam. “There are more takers for flexible rentals that are only offered by short-term rental companies. The resident looking to pay monthly without binding themselves to an annual contract constitutes 35 per cent of our guest portfolio.
“‘Workation’ is the new buzzword – remote working and online schooling has meant people can base themselves in the UAE from abroad to enjoy the opportunities and a lifestyle that is functioning relatively normally compared to the rest of the world, with safety protocols in place.”
So, a combination of factors is working on a full-scale recovery for short lets. Which is giving landlords and operators confidence about their chances even after the six-month Expo run comes to an end in April next. Plus, there is still the new Rental Law in Dubai coming…