Landlords - What is best, 1-year Rent or Short-stay Leases?

Dubai: Holiday home rentals in Dubai have been enjoying another start to the year, but will the summer dent occupancy levels and rates? Will it force property owners to pull these homes out of short-stay listings and put them up for the one-year rentals instead?

Many have already done so according to industry sources, as property owners see the double-digit increases still common on one-year rentals. Plus, new leases are being signed at an even higher rate, which immediately puts these owners at an advantage.

Industry sources, however, are quick to add that the activity in the Dubai short-stay/holiday home market isn’t all one-sided. “There is a lot of movement (of properties being added or taken out) in the market in both directions,” said Anna Skigin, founder and CEO of Frank Porter, a specialist property management consultancy based in Dubai. “Landlords are deciding to go long-term - or selling - as (one-year) rental rates and prices have increased.

“However, many others are coming into the market - and purchasing units to short-let them right away.

“We are also seeing a lot of change of ownership, as owners sell and new owners sign up straight with us. This kind of activity is a sign of a healthy real estate market.”

No shortage of options

What it suggests is that property investors – existing and new ones – are not short of options of what their course of action should be. Place the property in the one-year rental space and they can be sure they will be getting immediate leasing demand. More or less on their terms.

If the property owner’s preference is to go short-term, that too is good enough. They will be plugging into a steady demand flow, but the rental rates are starting to stabilise. Or even drop, as is likely to happen during the summer.

Anna calls it part of the return to normal times. “We are returning to normal summer Dubai activity, versus the unusual activity during 2020-21, when Dubai was one of the only destinations available for tourists globally.

“However, we expect this summer to perform better than last, when in 2022 the world opened up and tourists had more options to travel to for the first time since 2019.”

Landlords can look beyond summer

Thomas Wan is the co-founder and CEO of Unlock Holiday Homes. He insists that landlords will look beyond the short-term rate fluctuations and stay put.

“There will be a slight decline in the rates as demand varies, but there is a greater demand for holiday homes than ever before,” said Wan. “We anticipate that Summer of ‘23 will be the same if not better than pervious summers.

“According to the Dubai Department of Economy and Tourism, there has been a year-on-year increase of 45.5 per cent in the number of holiday homes registered in Dubai.

“March 2022 had 14,518 units registered while by March 2023 its 21,132. The increased popularity of Dubai as a tourist destination coupled with the increased demands of travellers looking for holiday homes has led to a rise in the number of short-term accommodations.

“While Business Bay, Downtown and Marina continue to see growth in the number of holiday homes, newer developments like Bluewaters and Dubai Hills have started to emerge as hotspots for holiday homes.”

More holiday homes, more pressure on rents?

The number of short-stay listings in Dubai since mid-2022 has been nothing short of exceptional. Clearly, many property owners who had their homes delivered during this period have placed them for short-stay rentals.

But at some point, will more options pull down the rates they can ask? This is where landlords and property investors should be looking into all available data before deciding between long-term rental or short..

Landlords, especially newcomers, base their decision to offer their units for short-term rentals on the data from 2021 and 2022, which were skewed due to the EXPO period that generated exceptionally high ADRs (Average Daily Rate).

I would recommend obtaining performance data covering the most recent 12 months or, at the very least, data from April 2022 onwards. This will provide a more accurate basis for setting expectations.

This summer, landlords will have some homework to do…