Cashing in on the rental boom (page 1 of 3)

In a world where two to three per cent rental returns are standard, the prospect of 17-20 per cent rental returns seem incredible to most property investors.

However, this is a reality for many of those that purchased properties in Dubai as recently as two years ago. Current rental yields are not quite as unusual, but still exceptionally high by global standards, hovering between five and 15 per cent, and averaging at about 8 per cent, depending on the type and location of the property.

The harbingers of doom have voiced concern over the UAE's maturing (some have said hyperinflated) market. Add to this mix rumours of property oversupply and a resultant fall in rents and property values and you get a dark picture.

But talk to active and experienced members of the leasing community, and you get a very different story. Louise Heatley, Managing Director and Owner of Exclusive Property Management Services, said: "Things are looking good for investors. And news will continue to be good for those that currently own and rent out property in the UAE. Interest in the rental of Dubai property of all types and standards is unprecedented.

'Supply is an issue. But my feeling is that even when the large number of scheduled residential units are delivered this and next year, there will still be a real shortfall. This shortfall in turn will protect the non-occupant investor and keep the rents stable and growing well into the future."

Rental yields to level off

All are in agreement that rental yields have to, and will, level-off slightly in the 2008-2009 period, and that the irrational rises in rents experienced in 2005-2006 are not likey to happen again (rents rose up to 30 per cent in 2005). This, however, should not disuade new investors from buying either completed or off-plan properties.

For people investing in properties now, the advice is that if you are looking for a stronger rent-to-investment ratio, look at buying an apartment and not a villa. Villa prices are soaring, mostly driven by an end-user clientele, so return on investment is not as good, averaging four to five per cent maximum at this time. Dubai apartments can confidently yield anywhere between eight and 12 per cent, depending on the location, but only if properly managed and rented by an experienced agent.

In relation to mortgages and insurance, it is worth noting that mortgages are not affected in any way by the leasing out your property. Insurance is a different story. You are legally obliged to contribute to your building insurance via the developer of your property, the fees for which are generally included in your annual maintenance charges.

Home insurance for individual units or villas is very much at the discretion of the owner. Though strongly recommended, is not a legal obligation. Home protection is as much to protect the landlord as the tenant in case of damage or personal injury. "We always advise our landlords to ensure that this is in place, no matter whether you plan to rent the propoerty on a short or long term basis," said Heatley.

When discussing the future of the rental market in Dubai, she continued: "The short term rental market is a very lucritive one in this popular sunshine destination. The Dubai Government, however, is planning to lock down on this pracice, one which many developers also strongly dislike.

'Minimum rental terms are expected to be set at six months, and plans are to legislate against unregulated short term lettings in the near future, forcing landlords to set up their short term rental business under a more company like structure, pending the developers agreement to rent the properties out under these terms.