What is Serviced Accommodation?

You may have heard of the phrases in the property market such as ‘Serviced Accommodation’ or ‘Short Term Lets’ but what does that mean exactly?

When you purchase a property in Dubai for investment purposes, you will most likely give the keys to a property management company to find a tenant to rent the property. Most likely, you will find a tenant to rent the property for a 12 month period and they will sign a traditional tenancy agreement.

Now, buying in Dubai represents an incredible opportunity which not all global residential cities offer, there is currently no strict regulation/licencing in place which prevents owners renting their properties on a short term basis.

In this case, owners would hand over the keys to a specialist short term let management company, they would then prepare the property for rent and advertise it on website such as ‘Airbnb’ or ‘Booking.com to visitors coming to Dubai as tourists or for business trips. These management companies would charge a premium, comparable to hotel rates for 1 night to a few months stay boosting cash flow.

Whilst the owner has more costs such as utility bills and W-Fi and the apartment won’t always be occupied, because of the premium being charged, it means if you average the monthly income over the year, investors will likely make around 20-40% extra in profits by operating a short let serviced accommodation model in comparison to renting the traditional way. 

Why is Dubai a good market for short term lets?

So, if you own an apartment in Dubai which is close to the key areas such as The Palm Jumeriah, Dubai Marina or Downtown Dubai, it’s likely that you can generate significantly higher rental income by operating a short term let model.

Now, Dubai is the perfect market to operate such a model for the following reasons:

• Visitor Numbers – The main one being the high number of tourists that visit each year, Dubai’s airport is the busiest in the world and the number of yearly tourists continue to increase, they all need somewhere to stay!
• Licensing and freehold tenure – again, fairly unique to Dubai is that there are no licences or regulation in the short term let space which means owners can operate such models, secondly, because you will be or have purchased a freehold property (even if it’s an apartment)  you don’t need permission from the freeholder or have it written in the lease. 
• Government Visa Policy – general government spending on infrastructure continues to grow the Dubai profile but in particular visa changes and new introductions such as the ‘Remote Working Visa’ or the ‘Talent Visa’ means people come to Dubai for 1-3 years and may not want to commit to one property for 12 months, therefore, there is a pool of high-earning tenants that need short term, flexible accommodation and your property could be a prime choice for them. 
• Mortgage Products – another key advantage specific to Dubai is that there is no difference between ‘residential’ and ‘buy-to-let’ mortgages, in other markets such as the UK if you rent on a short term basis your interest rates and lending potential from finance providers will be at a premium, whereas, in Dubai this isn’t a problem, your interest rates won’t be affected irrespective of the letting model. 

These are just a few examples but in general it’s the population and volume of visitors/tenants in the city that make it a prime opportunity to generate high cash flow from your assets in Dubai.

What if the occupancy rate is low?

You have to understand that operating this model will mean a fluctuating occupancy rate e.g. sometimes you will have people in the property and sometimes you won’t. However, if you own a quality property, in a good location with hotel like amenities will mean that there will be high demand for your property if priced and advertised effectively. In peak months in Dubai occupancy rates on Airbnb as an example can reach just shy of 80% on average across the city (airdna.co) and when you’re charging a premium for the nightly rate, this really drives up the income and makes up for any lower rates in the lower season. 

In fact, in order to make the same as you would on a long term let you may only need a 40-50% occupancy rate and anything above that would be clear profit. So there indeed is huge potential despite occupancy rates varying and in most cases it does make sense for you to operate a short term let model.

Get in touch with me to discuss this letting model and how you can benefit from it -nick.hyland@masarcapital.ae.

Author:

Nick Hyland

CEO