New regulations have opened the holiday home segment to more investors in Dubai, while giving property owners fresh revenue streams through short-period leases that offer higher returns. According to figures released by the Department of Tourism and Commerce Marketing (DTCM) in October, there are 1,805 approved holiday homes in the market and 117 approved holiday home operators in Dubai.
“Holiday home investors can make 20-40 per cent more on average,” says Alia Jamal, head of leasing and commercial at Gulf Sotheby’s International Realty. “Many investors who buy property in prime areas anticipate capital appreciation on their investment as some areas offer low rent returns, however, now these property owners can gain more by leasing their properties as holiday homes to increase the return on investment.”
Pawan Batavia, a realtor and investor in Dubai, earns up to 20 per cent more for his two units — a sea-facing one-bedroom apartment on Palm Jumeirah and a studio in Dubai Sports City — since putting them on the short-term rental market. He says, “My intention was to sell these properties, but until these were not sold, I wanted to earn the rental revenue on the units,” he says. “After deducting all expenses, I get around 10-20 per cent more than what I could have achieved from yearly leasing.”
While the DTCM permits individual owners to lease their units by themselves, Batavia says holiday home operators make a property owner’s job easier. “The operator manages the property by getting bookings, managing check-ins, check-outs, special requests by guests, cleaning and more,” he says. “They are professionals who have the infrastructure to do all this. People like us neither have the time nor the infrastructure to cater to clients who may be coming for holidays or short-term stay. The operator offers convenience against a commission.”
The process
According to the new DTCM regulations, tenants and owners can list a property as a holiday home, although tenants are required to obtain a no-objection certificate from the landlord, says Julien Laloye, a consultant at TRI Consulting, which specialises in hotels, leisure and real estate.
The simplified process requires a copy of the title deed and a Dubai Electricity and Water Authority bill as proof of ownership, while tenants need to present an NOC from the homeowner, Ejari registration and passport copy. There is an annual registration fee of Dh1,500.
“Unlike some European countries, Dubai has been very proactive in regulating the holiday home market,” says Laloye. “[Regulation] helps maintain fair competition between hotels and holiday homes. In several high-demand European cities, the increased demand for holiday homes has resulted in excessive subletting and exponential growth of real estate prices and rents, forcing the local population to relocate outside the city centre.”
Laloye believes the growth of the holiday home segment will further boost investor confidence in Dubai. “The short-term marketing of a property can provide investors higher yields and capitalise on high levels of demand during peak periods,” says Laloye. “For tenants, the option of renting out their apartments or villas, with the owner’s consent, during their annual leave can provide additional income, offsetting some of the annual costs of renting the accommodation.”
An operator typically retains 25 per cent of the revenue as a service fee, says Sanjay Chimnani, managing director of Raine & Horne, a real estate firm that also operates holiday homes.
“The operator provides 75 per cent of the revenue to the owners and retains 25 per cent as the fee for their service,” says Chimnani. “Owners earn better rental revenue than long leases. Moreover, when they want to sell the property, it offers greater flexibility whereas a long-term contract is regulated by Ejari tenancy laws, wherein the landlord has to give tenants a 12-month notice to vacate the unit.
“Dubai’s hospitality sector is oversupplied with luxury developments. However, the demand for affordable two-, three- and four-star hotels and serviced apartments is enormous. Creating new supply requires a lot of time to build, so, globally, holiday homes are filling this gap.”
Chimnani says holiday homes are vital to make Dubai more affordable for business visitors and tourists. He notes that in 2012-15, Dubai was regarded as a very expensive holiday destination, making it inaccessible to a broader market base.
The impact
Ali Manzoor, associate partner at Knight Frank, says the impact of holiday homes on the hospitality market is more severe towards affordable hotels, leisure-oriented hotels and hotels that are not run by international operators. “In many other destinations, holiday homes are mainly located in secondary areas outside of hotel districts,” says Manzoor. “However, holiday homes in Dubai are concentrated in Palm Jumeirah, Dubai Marina, Jumeirah Beach Residences, Dubai International Financial Centre and Downtown Dubai, so these are significantly affected by supply.
“The nature of hotel supply is relatively static; to increase supply by just one key, it is necessary to develop an entire hotel. In light of fixed supply, hotel operators have traditionally been able to charge aggressively during peak periods. By comparison, holiday home supply is more elastic, with a low marginal cost of additional inventory. This means that when the supply is taken as a whole, hotels have been finding that their ability to monetise from peaks in demand are diluted by additional holiday home inventory.”