A higher ROI makes holiday homes or short-term leasing an attractive investment model of property investors, allowing landlords to diversify their rental income. But after hundreds of homeowners in Dubai lost money in a recent fraud and were denied access to their own properties by two holiday home companies, experts are pressing the caution button.
Do your due diligence
Shine Sunny, co-founder and CEO of Raine and Horne Holiday Homes, tells property investors to do proper due diligence before choosing a holiday home operator to work with. She advises first to check and verify the license of the operator, profile and reputation, and ask for references that are verifiable. “It is important to work with the operator that has an appropriate licence from the Department of Economic Development [DED] besides the Department of Tourism and Commerce Marketing [DTCM] permit for the unit.”
According to industry sources, in leased and short-term letting arrangements, some unscrupulous operators have leased units annually from landlords on multiple cheques and then rented these units for a cheaper price and just one cheque. In such cases, some operators end up not honouring their cheques, contributing to the bad publicity in the sector.
Sunny says investors must engage with operators regularly. “Ask for updates, check on bookings consistently — you should have access to bookings in your apartment, which can be done with a third-party software,” says Sunny. “Also, know your rights. Visit DTCM and Rera to understand regulations. Holiday homes combine the benefits of buying a second home and a short-term rental property. Regulations by DTCM have ensured that Dubai has the best-structured market in the world for short-term rentals. Even instances of developers trying to impose restrictions have been effectively stopped and dealt with on merits by the regulator.”
Robert Mitchley, associate at BSA Ahmad Bin Hezeem and Associates, says property owners should especially be careful with newly registered companies with no track record. “That should be a red flag,” says Mitchley. “In a very well-regulated market like Dubai, only properly registered and reputable operators should be engaged.”
Having the proposed contract with the operator professionally reviewed also helps determine any fraudulent intention. “It is evident from the stories of the recent victims that the contracts signed with these operators contained provisions, which assisted them in their fraud by among other things, restricting access to the normally speedy dispute resolution processes,” says Mitchley. “Where a property owner is defrauded, the law provides both civil and criminal remedies, particularly when dishonoured cheques are involved.”
Homeowners can earn up to 10-15 per cent higher ROI from holiday home lease than annual rentals. According to Mark Kennedy, co-founder and CEO of Kennedy Towers, the Expo 2020 Dubai could be a boon for the market due to new jobs it will create. “We anticipate high levels of demand to continue throughout Q1 2020, and even towards the summer. In Q4 2020, we expect ADR and occupancy rates to rise considerably throughout the Expo period and in the years that follow.”