Short-term or long-term property rental in Dubai: a guide for property owners.

Dubai is rightly known for its real estate rental market, as it is a city of newcomers, with 90% of its population consisting of expatriates. Not all of these newcomers can afford to buy their own homes, so many opt to rent villas, townhouses, penthouses, or apartments in Dubai — whatever fits their budget. This is the main reason why the real estate market in Dubai is so developed and attracts numerous foreigners who are willing to invest in this market.

Renting real estate can be a complex task and it becomes even more challenging when you are in a foreign country and need to navigate all the nuances and laws. That is why, if you plan to rent a property in a foreign country, it is best to seek the assistance of real estate agents. They can help you find suitable accommodation, guide you through the entire transaction process and even assist with organizing your move to the new apartment.

On the other hand, if you are planning to rent out your property, you can also hire a real estate agent. They will take care of finding tenants for you, allowing you to relax and not worry about the process.

In this article, we will discuss in detail what to consider when entering into rental agreements for real estate in Dubai. If you already own property in this city, this article will be useful to you.

Can foreigners rent out property in Dubai?

The current legislation in the Emirates prohibits property owners from renting out their properties, whether they are citizens of the United Arab Emirates or any other country, for a period of less than 1 year. However, if we are talking about short-term rentals, i.e., rentals for less than 1 year, then the property owner must obtain the appropriate license that allows them to rent the property for short periods. This is known as a hotel or hotel apartment activity license. If you do not wish to obtain such a license, you can approach a licensed property management company, hand over your property to them for management and let the company handle the property rental. In turn, you will receive your share of the rental income on time, without any worries.

The real estate market in the UAE is highly profitable, primarily for the state itself. That is why the Emirates highly value their impeccable reputation and carefully monitor the market to prevent fraud. All real estate transactions are closely monitored by the government and all companies involved in real estate have a government license. This is why both property owners and tenants can feel protected and not fear falling victim to scammers.

What rental income can property owners in Dubai expect?

Let’s clarify right away that the amount of rental income depends on many factors:

• Expenses for maintaining and servicing the property (including utilities and repairs, if necessary);
• Location of the apartment (the more prestigious the area, the higher the rental prices);
• Category of the property (experience shows that the income from expensive properties is much lower than from more budget-friendly ones. Exclusive properties can only be afforded by a few individuals and they prefer to buy rather than rent. Therefore, if you plan to buy a house in Dubai to rent it out, choose more «affordable» options.

On average, the net income from renting residential properties in Dubai (i.e., after deducting all expenses) is around 5-10% per annum. This applies specifically to residential properties.

As for office properties, the average income can be around 15%. However, renting out office spaces is not currently profitable, especially in the past couple of years. Let’s explain why.

With the advent of the pandemic, many people switched to remote work and started working from home. The opportunity to comfortably work from home resonated with many individuals who no longer want to commute to work every morning and evening, preferring to spend that time with their families at home. As a result, large office spaces are no longer in high demand. Many owners of such spaces are now converting them into warehouses, sorting facilities, or exhibition spaces. In this age of internet technologies, online shopping is rapidly growing and owners of online stores need storage and sorting facilities.

Exhibition spaces are also becoming increasingly popular. Major organizers hold product, service and invention exhibitions in Dubai.

Who to Rent Property To?

If you have already chosen the most suitable type of real estate for investment, it is now time to determine potential tenants. So, who can you rent your property to?

• The most numerous and common type of tenants are tourists. From 5 to 17 million people rent apartments here for several weeks or even months each year.
• The second type of tenants (less numerous but more permanent and serious) are expatriates. Millions of people from different countries move to Dubai for permanent residency each year. Expatriates usually prefer long-term rentals and are more financially capable, so they choose larger and more expensive properties.
• The third type (the least numerous) are business representatives who come to Dubai for business purposes. They usually choose business districts or central areas of the city. They are mostly young individuals who have come to Dubai to earn money. They opt for studios and small apartments with 1 or 2 bedrooms.
• The last type is regular workers. This group of arrivals belongs to the less affluent or even non-affluent category. They may choose dormitories or labor camps since the accommodation there is much cheaper.

Legal Considerations

Renting out property abroad has its nuances, especially in the Emirates. When entering into a lease agreement for real estate, the rental price at which the owner agrees to rent out the apartment and the tenant agrees to take it on rent is specified. It should be noted that the property owner is not allowed to increase the rent within 2 years. Additionally, when increasing the rental price, the owner must consider the prices set by the Dubai Real Estate Regulatory Agency. This agency determines the average cost of housing based on the type of property and the area in which it is located. The prices should not significantly exceed these guidelines. The UAE authorities monitor to ensure that property in their country remains affordable for newcomers.

It is important to remember that all lease agreements for real estate must be registered in compliance with local laws. The registration of these agreements is also handled by the Dubai Real Estate Regulatory Agency. The contracts can be registered online through the Ejari system, which was created by the Agency. The registration on the website is free. The process is straightforward and easy to understand, so you can handle it yourself. After registration, the property owner is assigned a personal barcode that can be easily found in the database if needed.

Although this registration is not 100% mandatory, we still recommend going through with it. In the future, if any issues arise with the tenant, property owners who have not registered with the Dubai Real Estate Regulatory Agency lose their right to seek legal recourse. By ignoring this registration, you deprive yourself of the state’s protection against unforeseen complications and problems that may arise with tenants.

Another argument that may convince you to buy an apartment in Dubai and rent it out is the absence of property and income taxes in the Emirates.

How to Rent Out Property (Step-by-Step Guide)

Let’s outline the entire process of renting out property step by step:

• The property owner (either independently or with the help of an agency) looks for a tenant.
• The property owner and the tenant sign a lease agreement that includes all the details (starting from the rental price, payment terms and methods and rental period, to the responsibilities of each party in case of non-compliance).
• Upon signing the lease agreement, the tenant is required to pay the annual rental cost in advance and a security deposit (usually 5% of the annual rental cost, paid by cheques).

Early Termination of Contract

The rental agreement cannot be terminated early unilaterally by either the property owner or the tenant unless the contract explicitly includes a provision for early termination. To cancel the contract, the consent of both parties is required. Furthermore, the contract does not cease to be in effect even in the event of the death of one of the parties. In such cases, the rights pass on to the heirs. If the heirs wish to terminate the contract prematurely, they must provide prior notice to the other party (30 days in advance).

Investing in Dubai real estate is a wise and profitable way to generate income. You can make a one-time investment by purchasing an apartment here and then renting it out to enjoy a stable passive income. Especially considering the current realities and fluctuating prices, real estate in Dubai is no longer a luxury but a necessity. Another pleasant bonus is the quick processing of transactions in the Emirates. It is possible to buy a villa in Dubai or rent an apartment in just a few hours. In the future, the process is expected to be further accelerated and fully transitioned to online processing.

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