Why it's better to rent out your unit as a holiday home

Residents who frequently travel for business can utilise the empty periods for making extra income on the property.

Short-term rental demand is expected to increase leading up to the Expo 2020 and apartment owners can benefit from offering their units as holiday homes rather than a regular residential unit under annual lease terms.

Offering apartments in Dubai to travellers is only possible through the holiday home licensing offered by the Department of Tourism and Commerce Marketing (DTCM). The regulations for holiday homes were revised in May 2016 to allow individual home owners to approach DTCM directly rather than through professional holiday home operators as was the case earlier.

The DTCM classifies a holiday home as 'a furnished accommodation which is rented as a whole unit on a daily, weekly, monthly or annual basis without the issuance of an Ejari regulated tenancy agreement and should be registered with DTCM through licensed operators/individual homeowners/tenants.' Once the homeowners or tenants apply for and receive the licence, they can then sub-let the property - whether apartment or villa - to third parties on a short-term basis (less than one year).

Also, individual room letting is not permitted under the current guidelines and only the entire apartment or villa can be offered for short-term rental. As of October 2016, the DTCM had announced that more than 1,800 units across the emirate had been approved and were in operation.

To obtain a licence, homeowners need to register on the DTCM website and should ensure that the property meets the specified quality, health and safety standards and offers all the necessary amenities and guest services, in addition to insurance coverage and integration with the wider community. Owners are also accountable for meeting all legislative requirements and complaint management policies, and must ensure that the property is accurately listed to visitors and sufficiently maintained.

Procedures differ if a company wants to manage other people's property or if individual home owners want to manage their own apartments. The fees vary by property type and typically include the annual registration fee (around Dh1,500), a unit classification fee (Dh50), relevant knowledge fee (Dh10) and innovation fee (Dh10). The final licence is based on the number of rooms in the property as well as the term applicants intend to let it out as a holiday home.

There is a separate permit fees, which is calculated on the number of units in the portfolio. For each unit, applicants will pay Dh300 per year for each bedroom, and a maximum amount of Dh1,200 (for instance, for a six-bedroom villa, the payment will be Dh1,200 per year). Additionally, a tourism dirham fee of Dh10 or Dh15 per bedroom is payable, depending on the classification (standard or deluxe), per night of occupancy. Dubai Tourism inspects the registered homes to classify them as 'standard' or 'deluxe', depending on the offerings.

Bigger units (especially, 2 and 3-bedroom) do not compete with small-sized hotel rooms, which are targeting a different set of travellers. Including some holiday home units within a residential portfolio could help diversify the overall risk beyond regular residential demand. Even residents who frequently travel for business can utilise the empty periods for making extra income on the property. This would require preparing the apartment from a guest perspective such as offering a neutral palette décor and functionality in terms of kitchen and bathroom essentials, television, etc. Buildings with superior amenities are likely to attract more travellers.

The search for such buildings can begin through a review of listings of existing properties available for guests on websites such as Booking.com, Expedia, etc. Investors should focus on purchasing apartment units in locations with limited upcoming supply and proximity to public transport and tourist destinations, such as Dubai Marina, Palm Jumeirah, Jumeirah Beach Residence and Downtown Dubai.

The typical costs for the apartment would include service charges, annual maintenance fees, utilities (Dewa, WiFi connection, insurance, supplies, DTCM and building management fees, holiday home operator fees (20 per cent of rental), furnishing and white goods cost, as well as marketing costs. Taking these costs against the expected rate per night at occupancy levels of 60 to 65 per cent, the net income for the apartment is expected to be higher as a holiday home versus annual rent as a regular residential unit. The calculation would vary for each building and apartment type and should be evaluated closely before purchasing an apartment for short-term rental purposes against operating it like a regular residential unit offering annual lease terms.

The writer is associate partner, strategic consulting and research at Cavendish Maxwell. Views expressed are her own and do not reflect the newspaper's policy.