If you are a first time investor in Dubai, you might have already seen the advertisements, got the pitch from several real estate consultants and received information about property ownership from multiple sources. But is it that simple? Is buying and renting the property all that it takes? If you are a first time investor in Dubai, or not, let’s understand what your actual rental yield is.
While most of the service providers and agents try to sell you the ‘Gross Rental Yield’, you should always be aware of and enquire about the ‘Net Rental Yield’. There are many costs that you should account for as a property owner. These costs mainly fall into 2 categories -
Recurring Costs
Service Charges - The building / community charges the property owners for common amenities, landscaping and other services offered by the management.
Maintenance - Costs related to looking after the unit, repairs and property management services.
Vacancy Periods - If the property is not rented out, you are losing a month’s worth of income out of your annual yield
Listing + Marketing Charges - Costs related to listing, getting photos and videos done and marketing the property via a consultancy or by yourself.
Renewal Fees - Costs associated with registering tenancy agreements
Mortgage - Instalments and interest payments if you have taken out a mortgage against the property or missed an instalment.
VAT - While residential property owners don't have to pay VAT, commercial property owners are subject to a 5% VAT.
These costs recur either monthly or at other regular intervals. These are the costs that an owner may have to keep paying regularly. There are other costs that arise when acquiring the property they intend to rent out.
Acquisition Costs
Property Value - The price you have to pay for the property.
Property Registration - The fee you have to pay to the DLD when you get your transaction registered.
Broker Fee - The cost of your brokerage.
Service Partner Fee - Costs related to any supplementary services such as currency exchange, POA, furnishing and more.
Mortgage Registration - Service fees for registering for a mortgage.
Title Deed Issuance - Service fees related to issuing the Title Deed to the new owner.
Even though the above lists cover most of the extra fees that add up to property acquisition in Dubai, there will be more charges adding up if you require other services to help with your transaction.
There are two ways to calculate your rental yield:
Gross rental yield = (Annual rental income / Property purchase price) * 100
Net rental yield = (Annual rent - recurring property expenses / Total acquisition cost) * 100
As discussed in this article, buying a property in Dubai to earn ROI is not just about the property value listed on the advertising and definitely doesn’t guarantee a best-case-scenario ROI all the time. By making sure your consultant gives you a clear breakdown of all the costs, and choosing a property that attracts the tenants you intend to rent out to, you can cut down the impact on your ROI.
Get expert property solutions in Dubai with Anarock Middle East, to understand your actual costs and how to manage your investment property to achieve your individual investment goals.