Dubai: For many people who are new to the UAE, and new to renting in general, the idea of committing too little or too much money on a contract, be it a short- or a long-term lease, can be a major stressor.
If you have a roommate, they'll also sign the same lease. But before you sign the lease, you'll need to know if you are looking for a short-term or long-term lease agreement. This will reduce your options, as not all apartments offer both choices.
What is the difference between short-term and long-term leases?
While a short-term rental lease typically refers to a contract that is less than six months to a year, a long-term rental lease is anything longer than that.
Once a long-term lease is signed, there is very little wiggle room to get out of the contract should unforeseen circumstances arise. However, a short-term leases may have the flexibility you desire but comes with a heavier price tag.
Let’s briefly understand a few vital deciding factors and workings of short and long-term rental contracts to help you figure out what’s right for you.
Pre-payment: Long-term leases are paid monthly or quarterly, whereas short-term leases are generally pre-paid. Coming up with this much cash up front may not be an issue if your short-term is for a few months.
On the other hand, if your short-term is closer to let’s say nine months or more, the pre-paid sum can add up. Your bank account may dictate whether short-term can be viable option.
Commitment: If a long-term contract can’t be committed to, a short-term commitment may be for you. Why would you want short-term rental if you may only want your rental apartment for a particular term and be commitment-free after the time period ends.
If you are new to the city, you may want to test out a neighborhood before committing to a long-term lease. Or you may have another apartment lined up, but it’s still a few months out, and you need a place in the interim. There are many other reasons why tenants may not want or need to commit to a year-long lease.
Extension: While on the topic of commitment, if you are a tenant who has found a rental apartment to your liking, deciding between either of the contract types gets easier.
If you are in a long-term contract, you wouldn’t face any trouble renewing and extending your lease for another year. But, if you are in a short-term rental apartment, you may not be able to extend your lease. Rental leases reflect the market and interest at the time of lease renewal.
Price over ease?
For a tenant, the price of a long-term rental always beats a short-term rental. There is a premium that tenants or guests need to pay for all-inclusive and fully furnished homes.
Tenants who are looking to stay in the UAE for a few years, will generally choose the long-term option and not have a renewable short-term rental contract.
Just as owners, tenants or guests have full flexibility in a short-term rental. Guests can book and move into a fully furnished and fully equipped property all in the same day. Guests do not need to activate any utilities or go through any red tape to move in – they simply need to pay and provide passport details.
Guests can also shorten or extend stays depending on their situation. Tenants looking at long-term do not have any flexibility after moving in and are locked in for that year.
Although there are pros and cons to both, it differs slightly depending on whether you are a property owner looking to invest or if you are a tenant or a tourist even. It all depends on what you are seeking.
What if I was looking to invest in a property – which mode should I prefer?
Generally, owners earn much higher returns doing short-term versus long-term – it can range between 20 and 40 per cent depending on location, size and interior design.
Property consultants opine that tourists will always pay a higher fee than tenants, so even accounting for extras that owners need to provide – owners will still make more money.
Also, short-term returns are constant whereas long-term returns are fixed over a contract period. This means that over a three-year period for example, short-term will make you money consistently, while via long-term, you can have empty gaps between contracts, making no money while searching for a new tenant.
Factors to weigh as a potential buyer or investor: Returns, Flexibility, Hassle
Due to the nature of short-term rentals and seasonality, returns vary month to month. In the UAE, for example, the returns will be higher in December than in May.
Long-term returns, however, are fixed based on the contract time period. Owners who don’t like varying returns, will prefer locking themselves into a fixed contract with a long-term rental.
Short-term always wins when it comes to flexibility. The entire concept of renting out a property short-term centers around being able to use it for any purpose whenever you want. As an owner, you can always use your own property and rent it out to guests when you wish.
Also, you can always switch to long-term or sell the property at a moment’s notice. There is no flexibility with a long-term tenant. Once they are locked in for a period, you are not able to legally do anything with your property.
However, there is more setup when it comes to short-term rentals. You must furnish the property and turn on all utilities. So there are initial costs and work to consider, before you can get guests.
However, with the increase of property management companies, owners don’t need to do any of this themselves. In contrast, long-term tenants handle all utilities and their own furnishings.
Some FAQs on short-term rental leases
FAQ #1: I have a property in Dubai and I want to let out for short term. What should I do?
You can obtain the services of a holiday home operator or register the home directly with Department of Tourism and Commerce Marketing (DTCM) as an operator.
For maintaining occupancy across the year, you will need to then advertise with local property websites and conduct multiple property viewings every week when sourcing bookings.
FAQ #2: What is the cost of obtaining a permit from DTCM?
When you do not want to use an agency, a tourism licence will cost Dh1,570 per year. You must also ensure that you have the proper insurance policies covering the risk that may occur to a guest, property or building. Once you have everything set up, you can start listing your property on booking sites.
FAQ #3: Can I stay in the same property and let it out as a vacation home?
You can only rent out entire units, and that can’t be shared with the property owner or other guests. Personal usage of the property by the owner is permitted when relevant government fees are paid during the stay.
If you are a tenant and want to lease your property during a limited period, it is possible, but you need to apply for a limited time permit, must have the approval of the property owner, and must comply with the regulations set by DTCM.
With short-term rental you can enjoy high average daily rates across the year — an average of Dh800 in high season and Dh500 in low season. The yield is usually higher for a one-bedroom unit than a two-bedroom one, if they occupy the same amount of guests.
