Dubai real estate: How much money do landlords make on property?

The pay off period, however, can come down significantly when the appreciation of the property during the period is considered, data compiled by Colife, a UAE-based rental co-living and property management service, showed.

“On average, rental yield in Dubai is around 5-7 percent, which can go up to 11 percent annually for properties with high liquidity.

“However, as the property’s value itself is increasing year-on-year – property prices in Dubai are estimated to have posted a 14-15 percent rise from mid-2022 to mid-2023 – the payback period will also get shorter,” the study said.

As a case study, Colife cited the example of a client approaching the firm in December 2022 to look for a property under $150,000 with a good return.

“We found a studio in Al Furjan – an area which has constant high demand for rented apartments – and helped our investor purchase it for $122,110. Just one month after the deal we rented the apartment out for $1,259 per month. That’s a 10.7 percent annual return,” it said.

The study by Colife, which provides end-to-end services in property management, offers several valuable insights on investment potentials in Dubai, as the emirate keeps luring in people from all over the globe.

According to the consulting company Knight Frank, Brits, Indians, and Chinese buyers are leading the pack of international investors in Dubai.

Types of residential units in demand

The Colife study said that based on its customer requests, studios, 1-bedroom and 2-bedroom apartments are the popular choices for investors looking for residential assets in Dubai.

Its survey also showed prospective tenants looking for utilities included in the rent (47.6 percent) as their top priority, closely followed by convenient locations (42.8 percent), 24/7 free service (4.7 percent) and community events (4.7 percent) while taking apartments on rent.

The study said investors who buy property want to put their money to work and get a steady income – like investing in stocks or shares in funds to get dividends.

“Investors treat their Dubai real estate as a long-term asset to safeguard their capital from economic and political risks in their home countries,” it said, adding that the success of investing in real estate depends on many factors such as current market situation (prices, property liquidity), type of housing, location and property management company that will rent out the purchased apartment, Inna Tkachenko, the Head of the Real estate Purchase and Management Service at Colife Invest,” told Arabian Business.

Which neighborhood is worth buying property in?

When it comes to choosing the right neighborhood for real estate investment in Dubai, the study said it is crucial to look beyond just the districts and focus on specific towers within them.

“Even in the most popular areas there are towers that we’ve flagged as problematic as they have issues like mold in apartments due to poor ventilation, frequent elevator breakdowns and underdeveloped infrastructure,” Tkachenko said, adding investors often are not aware of all the intricacies associated with each tower.

She said on the other hand, there are hidden gems in less mainstream areas.

“These can include apartments priced below market rates or their owners are eager to sell quickly for their own reasons or simply because they’ve already profited from the apartment’s value appreciation and decide to cash in, even though the value is still on the rise.”

Another opportunity is the “cancel” offers, when a buyer backs out of a deal and the right to purchase their apartment is transferred to a new buyer.

“Among our rental clients the most popular areas are Dubai Hills, The Greens, Creek, JLT,” Tkachenko said.

Off-plan or resale?

Well, there’s no definite answer to this question. It largely depends on the goals of the future homeowner, their budget, and what’s available in the market.

The Colife study said many investors often place their bets on off-plan properties, with the intention of selling it later.

“But that doesn’t always work out. Sometimes, the apartment’s value drops during the construction or by the time the tower is completed,” it said.

The value drop can happen due to reasons such as a developer initially overpriced and overvalued the property or because of the overall property market condition in Dubai.

“We mostly deal with resale properties as most investors who come to us aim to buy and immediately rent out their apartment to generate income. Besides, these properties don’t cost more than brand-new ones, Tkachenko said.

“For instance, in Dubai Marina in 2023 property prices on the primary market increased by over 33 percent, while on the secondary market it was a little more than 15 percent In the same year, however, primary properties in Dubai Hills went up by 14.95 percent and secondary properties by 22.18 percent, she said.

“So, when deciding on off-plan or resale, it’s crucial to focus on the specific property, not just the neighborhood,” Tkachenko said.

How much does real estate cost in Dubai?

The Colife data showed the average price for a studio in Dubai at about $260,000 – that’s roughly $3,000 per square meter.

“While there’s no fixed price ceiling, an investor can certainly specify a preferred starting price [to aim for a high return on investment (ROI) and thereby a quicker pay off period,” it said.

The study also revealed high demand for both short-term and long-term rentals in Dubai.

The Colife data showed rental prices increased by 8-10 percent on average in Dubai from the beginning of 2023.

“There was a 30 percent rise in short-term rental prices due to the end of summer season and the start of high season in Dubai. Long-term rental costs have also increased by 27-30 percent since January 2023,” it said.

The study also said both property prices and rentals in Dubai will continue to rise, riding on factors such as the emirate’s plans to double its economy by 2033, increasing the number of global companies and skilled professionals coming to the city.

“These will drive up property prices – as also – rental prices,” it said.