In this article I would like to present you with an investment and management approach with which the proceeds from attractively situated apartments in Dubai can be boosted by approximately 20% – 45% under realistic assumptions vis-a-vis conventional letting.
The strategy takes advantage of the fact that Dubai registers by far the largest per capita tourist expenditures in the world – 106% more than London coming in second – while occupying fourth rank in total international tourist arrivals with a strong upwards trend (Mastercard Global Destination Cities Index).
Essential: The Suitable Property
The approach is based on the acquisition of an apartment which promises to be a highly attractive offering to tourists with respect to its size (1-2 bedrooms), location and transport connection. In high demand are proximity to beaches, top-notch pool amenities, metro access, well-developed surroundings (no construction, shopping facilities) as well as a high density in restaurants and bars.
Typically, such properties can be found in areas like the Palm Jumeirah and Dubai Marina, while business travellers would also be looking for locations like Downtown Dubai, Business Bay and the greatly evolving Citywalk area.
After all, bear in mind that Dubai is host to 50% of all fairs and exhibitions in the Middle East and undisputedly constitutes the no. 1 business hub of the region. Therefore, central locations with proximity to the exhibition centre are naturally capable of drawing demand from the continuously rising number of solvent business travellers.
Indispensable: The Suitable Short-Term Service Provider
The acquisition is followed by an outfitting of the apartment that is equally friendly as durable, a professional photo shoot and the handover to a service provider who specializes in doing short-term rentals. The latter will promote the property in all relevant tourism portals (AirBnB, booking.com, flipkey etc.) and be responsible for all transactions and activities of the value-added chain (pre-booking until post-checkout) of the property.
For this purpose it is indispensable to have a reliable partner on the ground who possesses a host of diverse competencies. These include the permanent resourcing of maintenance and cleaning teams, concierge and transfer services as well as the essential ongoing optimisation of the pricing schemes on several tourism portals, to name but a few.
The partner of choice must be licensed by the Dubai Economic Department (DED) as well as the Dubai Tourism Authority (DTCM) in order to offer the services provided.
I explicitly disadvise to mandate a service provider without the experience-based advice of peers or other references as the above-mentioned licenses by no means constitute a quality characteristic, thereby not guaranteeing success of the strategy!
Another advantage of appointing a professional short-term letting agent is the fact that the investor is relieved from performing all day-to-day management activities of the property, which will naturally appeal to investors who are residing overseas.
The following graph depicts the projected proceeds (UAE-Dirham) from short-term rental of a 2-bedroom apartment in a good location in Dubai Business Bay compared to the conventional long-term rental of the same unit. Considered are all ongoing costs with exception of service charges.
Dubai`s Tourism Market: Today and Tomorrow
It is since several years that Dubai`s tourism sector has been witnessing a steep growth trajectory and the government`s vision to welcome in excess of 20m visitors in the year of the World Expo 2020 seems fully realistic from today`s perspective.
Since surpassing the 10m barrier in 2012 international tourist numbers keep increasing steadily by a rate of close to 8% per annum. This is more than remarkable considering the oil price slump witnessed since mid-2014 which has significantly slowed tourism demand from Dubai`s regional key markets like Saudi Arabia and other neighbouring states.
It is a fact that Dubai`s hotel room inventory is seeing a substantial increase at present. However, the majority of stock in the hotel construction pipeline will target the segments below the 5-star standard in subprime locations.
Therefore, short-term apartments in suitable top locations will see very limited downward pressure from the new hotel room inventory, while the 5-star hotels within the above-mentioned prime areas are – due to their cost structure – naturally restricted in implementing aggressive pricing strategies.
Summary:
Considering the outlined business conditions it becomes apparent that Dubai presently is second to none with regards to the yield potential of short-term-operated properties.
Aside from the achievable excess returns, the strategy offers the investor the advantages of a higher flexibility (short notice period) in addition to the relief from day-to-day management and supervision duties. Furthermore, the strategy is arbitrarily scalable, the adaptability of the short-term service provider presupposed.
There can be no doubt that the approaching World Expo 2020 will trigger an extraordinary demand within the whole of Dubai`s tourism sector. Investors intending to cash in on this opportunity are well advised to make their move in the near future as the accumulation of a history of guest reviews within the pertinent tourism portals is certainly vital in order to achieve outstanding occupancy and roomrate figures.
In consideration of the above – especially mid-term – advantages I have now allocated a handful of properties under my management to the short-term strategy. As the seasonal nature of this business does not yet allow to draw final conclusions about its rentability, I will come back to this subject in a later contribution.
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The author advises institutional investors about property transactions and handles property portfolios in Dubai since the year 2007. Should you have comments or inquiries, please contact the author on author@property-blog-dubai.com.
