Short vs Long Term Rentals in Dubai

A crucial decision that many investors face is whether to rent out their property on a short-term or long-term basis. Short-term, such as vacation rentals via platforms like Airbnb, or whether to opt for long-term rentals with permanent tenants. While both options offer unique benefits, I often advocate long-term rentals for international buyers. Let’s take a closer look at why this is often the best choice.

The Benefits of Long Term Rental

Long-term rentals offer numerous advantages for property investors. Particularly for international buyers who value stability and simplicity over the potential higher profits of short-term rentals. Here are some key reasons why long-term rentals are often a more attractive option.

1. Stability and Predictability

One of the biggest advantages of long-term rentals is the stability and predictability of income. This is especially valuable for investors who do not live nearby or do not have the time to manage the daily challenges of short-term rentals.

Stable Income: Long-term rentals provide a consistent monthly stream of rental income, usually locked in for a year. This financial stability makes it easier to budget, make long-term plans, and map out your investment strategy.
Better Prospects for Occupation: Unlike short-term rentals, long-term rentals offer the security of a permanent tenant for the duration of the lease. This reduces the risk of unplanned vacancies and the associated loss of income. Continuity of occupancy means you don’t have to worry as much about constantly looking for new guests or tenants.
Reduced Risk of Price Fluctuations: Long Term Rental Contracts protect you from sudden fluctuations in rental prices that can occur due to market volatility or economic changes.

2. Less Management and Maintenance with long-term rental

For international buyers, especially those who live far away, managing a short-term rental can be a significant challenge. Long-term rentals, on the other hand, require much less intensive management and maintenance.

Lower Management Costs: Properties that are rented out on a long-term basis usually require less frequent cleaning and maintenance. Unlike short-term rentals, where you have to clean and make any repairs after each stay.
Reduced Frequency of Maintenance: Long-term renters tend to take better care of the property because it is their home for a longer period of time. This leads to less wear and tear and lower costs for repairs and renovations. Additionally, renters are usually responsible for minor repairs and day-to-day maintenance, leaving the owner responsible only for larger structural or systemic repairs.
Less Intensive Management: After signing the lease and initially setting up the lease, long-term rentals require minimal day-to-day involvement. This makes it ideal for owners who are remote or want to be less involved in day-to-day management.
Lower Management Costs and Fees: Long-term rentals often have low management fees, especially if you choose to rent through the developer. This can improve the overall profitability of your investment by reducing operational costs.

3. Legal and Regulatory Considerations

Dubai has strict rules and regulations regarding short-term rentals. For international investors, obtaining the proper permits and adhering to these regulations can be a complex and time-consuming process.

Less Regulation: Long-term rentals are often easier to regulate and require fewer permits compared to short-term rentals. This reduces the risk of legal complications and fines.
Contractuele Zekerheid: Long-term rental contracts offer more security and protection for both parties. This means less risk of disputes or unexpected changes in the lease terms.

The Disadvantages of Long Term Rentals

While long-term rentals offer many advantages, there are also disadvantages that owners should consider before opting for this rental strategy. It is essential to have a good understanding of the potential challenges and limitations of long-term rentals, especially in a dynamic market like Dubai.

1. Varying Income

One of the biggest disadvantages of long-term rentals is that they typically generate lower income compared to short-term rentals, especially in touristic and popular areas in Dubai.

Fixed Rental Prices and Less Flexibility: Unlike short-term rentals, where you can adjust rates daily based on supply and demand, long-term lease rates are often fixed for the duration of the agreement. This means you can’t take advantage of spikes in demand or special events that could temporarily increase rental rates.
Loss of Tourist Pricing: In a city like Dubai, which attracts many tourists, securing your property for long-term rental could mean missing out on the opportunity to charge higher rates to tourists during peak seasons or major events. This can be especially detrimental if your property is located in an area that is popular with visitors.

2. Limited Flexibility in Long Term Rental

Long-term rentals limit flexibility and can tie you to a tenant for a longer period, which has some disadvantages.

Restricted Access to your Property: When you have a long-term tenant, you do not have access to your property for personal use. This can be problematic for owners who want to stay in their property occasionally, especially if they are using it as a holiday home or a base for business trips.
Long Term Commitment: Locking in a long-term lease means that you are bound to the tenant and the rent for the duration of the contract. If market conditions change or you receive a favorable offer to sell your property, it may be difficult to modify or terminate these contractual obligations.
Difficulties with Contract Termination: If you decide to sell your property sooner or use it for personal purposes, it can be difficult to terminate a long-term lease.

3. Restrictions on Rent Increases and Contract Terms

Long-term leases may impose restrictions on the ability to increase rent or modify the terms of the contract.

Fixed Rent Increases: Many long-term rentals limit the amount the rent can be increased each year, either by legal limits or by agreed-upon terms. This can limit your income, especially in markets where the cost of living or property values are rising rapidly.
Rental Law and Tenant Protection: Rental laws in Dubai often protect tenants from inappropriate rent increases or early termination of the lease. This can mean that you have less flexibility in adjusting the rent or terminating a contract to find a more profitable tenant.
Restrictions on Renegotiations: In some cases, you may not be able to renegotiate the terms of the contract until the end of the lease, even if market conditions change significantly. This may limit your ability to respond to market changes and weaken your financial position.

Modern Townhouse in Dubai voor langetermijnverhuur

The Benefits of Short Term Rentals

While long-term rentals offer many benefits, it is also helpful to consider the potential benefits and challenges of short-term rentals.

1. Higher Revenue per Night

Short term rentals can generate significantly higher revenue per night compared to traditional long term rentals. This can be particularly attractive in a city like Dubai, which is known for its tourist attractions and major events.

Tourist Seasons and Events: Dubai attracts millions of tourists each year for its iconic landmarks, luxury shopping malls, and world-famous events. During these peak periods, demand for accommodations increases dramatically, allowing landlords to raise their rates. Properties in popular areas such as Downtown Dubai and Dubai Marina can command significantly higher rents during the tourist season.
Dynamic Pricing Strategies: Short-term rentals allow you to apply dynamic pricing strategies, where rental prices can be adjusted daily based on demand, seasonality and competition. This allows you to get the most out of your investment by being flexible in responding to market changes.

2. Flexibility

One of the most attractive aspects of short term rentals is the flexibility it offers owners. This flexibility can be beneficial in several ways:

Own Use of the Property: As an owner, you have the option to use the property yourself when it is not rented out. This is ideal for investors who travel to Dubai regularly for business or pleasure.
Adaptability to Market Changes: Short-term rental also offers the opportunity to respond quickly to changes in the market. For example, if the demand for accommodation increases during a major event in the city.
Flexible Rental Conditions: Short term rentals allow you to tailor the rental terms to the needs of different tenants. This can range from the minimum rental period to additional services such as cleaning and transportation. This increases the appeal of your property to a wider range of potential tenants.

Appartmenten met uitzicht op zee en de skyline van Dubai voor langetermijnverhuur

The Disadvantages of Short Term Rentals

While short-term rentals can offer significant benefits, there are also significant disadvantages that should not be overlooked. These challenges can be particularly problematic for international investors. Let’s take a closer look at these disadvantages.

1. Higher Management Costs and Complexity

Managing short term rentals can be significantly more time and money consuming than long term rentals. These higher management costs and the complexity of management can be a major burden. Especially for international investors who are not locally based.

Frequent Cleaning and Maintenance: Short term rentals require a high level of maintenance and regular cleaning between guests. This can then lead to higher operating costs. In a city like Dubai, where guest expectations are high, failing to meet standards can quickly result in negative reviews.
Guest interaction and management: Short-term rentals require someone to be available at all times. This is to welcome guests, answer questions, and resolve any issues that may arise. This can be particularly demanding, especially if you are not local and need to hire a trusted local partner to handle these tasks.
Rental platforms and Marketing: Successfully renting out your property in the short term requires a constant presence on rental platforms. This means investing in attractive photos, detailed descriptions and competitive pricing strategies. Managing these online profiles and responding to reviews is a time-consuming process.
Higher Insurance Costs: Also, units used for short-term rental are subject to higher insurance premiums. This is due to the increased risk of damage due to frequent guest changes. You must ensure that you have insurance specifically tailored to short-term rental. This of course entails additional costs.

2. Inconsistent Income

One of the biggest risks of short-term rentals is the inconsistency of income. While the potential earnings per night can be high, these earnings can also fluctuate greatly.

Seasonal Fluctuations: Demand for short-term rentals can vary greatly depending on the season. During the tourist season, occupancy rates can be high, but outside of the season, you may experience longer periods of vacancy.
Market sensitivity: Also, short-term rentals are very sensitive to market changes and external factors. Examples include economic downturns, political instability or health crises such as the COVID-19 pandemic. This results in sudden drops in rental income.
High Competition: The short term rental market in Dubai is highly competitive. With a large number of properties and hotels available for rent, it can be difficult to consistently attract guests.

3. Strict Regulations and Permits

Dubai has strict rules and regulations for short-term rentals. These regulations can be complex and often require owners to obtain specific permits and adhere to certain operating standards. Failure to comply with these rules can result in legal problems and financial penalties.

Permits and Registration: In order to legally rent out a property on a short-term basis in Dubai, you must obtain a permit from the Dubai Tourism and Commerce Marketing (DTCM). This process can be complicated and time-consuming, and failure to obtain the correct permits can result in heavy fines and a ban on further rentals.
Compliance with Local Regulations: Short-term hosts must also adhere to strict rules. These include requirements for the quality of the accommodation, safety regulations and guidelines for reporting guests to the authorities. Failure to comply with these rules can lead to legal complications, including possible lawsuits from guests or neighbors.
Frequent Rule Changes: The regulations surrounding short-term rentals can change regularly. Investors must constantly stay up-to-date with the latest legislation and adapt to new requirements. This can be challenging.
Limited Rental Periods: Some municipalities and residential areas in Dubai also have restrictions on the number of days a property can be rented out short-term per year. This can limit your ability to generate income and reduce the flexibility of your rental strategy.

Short vs Long Term Rentals

For international buyers, long-term rentals offer greater stability, less management and lower maintenance costs. It reduces the risk and complexity of managing a property remotely. It also provides a consistent and predictable income stream, making it easier to plan and manage your investment.

While short-term rentals can offer attractive returns, especially in a city like Dubai, it is important to consider the associated challenges and costs. If you are looking for a more hands-off, stable and predictable investment option, long-term rentals are the better choice.

Do you have any experiences or questions about renting out real estate in Dubai? Share them in the comments below and let's learn from each other's insights together!

Apartment in JVC in Dubai

Article references: AirBnB | Interact | National News |