Holiday Homes: The rising Asset Class of Sharing Economy

Renting a property out for short-term or holiday lets could be the ideal interim solution for Dubai real estate investors struggling to find a buyer for their unit.

Sales transactions in Dubai fell 21 percent in the third quarter of 2016 versus three months earlier, according to a report by consultants Cluttons, extending a slump precipitated by a slowdown in the Gulf economies and measures by the UAE authorities to curb property speculation.

With more than 32,000 residential units listed for sale on Propertyfinder.ae, sellers are in for an uncertain wait.

Potential buyers are usually averse to properties inhabited by long-term tenants and so many investors hoping to sell instead leave their unit vacant, missing out on rental income and reducing their overall return.

Owners are therefore better advised to rent their properties as short-term lets, which generate 30–60 percent more income than a standard year-long lease, and that’s allowing for seasonality when occupancy and rates drop over the summer months.

The premium associated with holiday lets is also growing, with long-term rental values falling about 10 percent last year, Cluttons estimates, and there are other non-financial benefits too.

Empty apartments are usually dingy, dusty and not at their best when buyers come to look around, but imagine how much better an impression an immaculately kept apartment managed by professional letting company would make.

The owner can also use the property themselves whenever they like, but is ready for a quick sale when that buyer does come through.

Dedicated short-term leasing companies such as One Perfect Stay arrange all maintenance and upkeep of the properties they manage, so owners don’t have to worry about sorting out cleaning, bills, service charges and the like, with these costs deducted from the leasing income. A dedicated guest relations officer also checks in guests and takes care of day-to-day management tasks such as providing fresh linen and towels to ensure visitors have a happy stay.

Short-term letting does require owners to equip the properties with furniture and other essential items such as kitchen ware, internet and bedding, but those initial costs are more than recouped by the extra income generated versus long-term rental contracts. Likewise, the unit should be freshly painted, although companies such as One Perfect Stay are happy to arrange for that too.

About two-thirds of the 3,860 Dubai listings on Airbnb are for entire properties, data from industry analysts Airdna shows. Average daily room (ADR) rates for studio lets are $129, while ADRs for one-bedroom and two-bedroom units are $168 and $280 respectively. Properties with four bedrooms or more achieve daily rates of $771 on average.

Neighbourhoods popular with tourists and business travelers are most in demand for short-term lets, particularly Dubai Downtown, Jumeirah Beach Residence (JBR) and Dubai Marina, plus JLT sub-districts that are close to metro stations.

Properties should ideally offer in-building facilities such as a swimming pool, gym and dedicated parking space, while guests usually also want essential amenities including restaurants, cafes, grocery stores and beauty salons nearby — the more diverse the facilities the bigger premium for short-term lets.

In terms of property size, studios, one-bedroom and three-bedroom units are most popular, while villas on Palm Jumeirah are a big draw for wealthy families seeking a luxurious, secluded vacation.

Nearly nine in 10 Dubai properties listed on Airbnb are let for less than three months at a time, while occupancy rates hold up well even during the summer months — properties at the 90th percentile have a 97 percent occupancy in July, according to Airdna, while those at the 75th percentile achieved 68 percent.

Dubai’s tourism authority now allows individual owners to manage their property for short-term letting providing they obtain the necessary permits, but doing so is time consuming and maximizing rental income is tricky for would-be amateurs.

For One Perfect Stay, the average occupancy is more than 87 percent. It’s a full-time job running a short-term let, from posting adverts to getting bookings to checking guests in and out and arranging maintenance and cleaning,

After a few weeks of trying by themselves, many clients turn to professional companies like One Perfect Stay for help — trying to do this and keep on top of a full-time elsewhere is exhausting.

Letting agents, of course, expect a cut of the earnings in return for managing a property. This ranges anywhere from 10 to 30 percent, but beware those companies offering the cheapest rates — usually there are hidden extras that make the real percentage paid substantially higher than advertised.

Instead, owners should use an all-inclusive agent — these typically charge 25 percent, which is the case for One Perfect Stay.