Higher Rental Yields: The Upside of Lower Prices

One of the few positive consequences of the correction is that rental yields on completed properties in Dubai have improved. Prices have fallen further than rents in many areas, meaning investors buying today can expect higher income relative to their purchase price than at the peak.

Gross versus net yield

Gross yield is annual rent divided by purchase price. Net yield, which matters more, subtracts service charges, maintenance, management fees and allowances for void periods. In Dubai, service charges can significantly reduce net yields, especially in buildings with extensive amenities.

How to calculate realistically

• Use achievable rents for similar units, not asking rents.
• Include service charges, maintenance and management.
• Allow for void periods between tenancies.
• Include purchase costs such as registration fees.

Where yields are attractive

Yields tend to be higher in mid-market apartments, where prices are lower relative to rents. Prime properties often have lower yields but offer more stability and capital appreciation potential.

Yield and risk

Very high yields can signal higher risk: oversupplied areas, weak buildings or tenants likely to leave. Investors should consider the sustainability of rents, not just the headline figure.

The effect of new supply

Areas with large numbers of new completions may see rents fall further, reducing yields. Investors should check the pipeline in the area.

A worked example of net yield

Consider an apartment bought for one million dirhams that lets for eighty thousand dirhams a year. The gross yield is eight per cent. If service charges are twelve thousand dirhams, maintenance and management cost a further eight thousand, and the unit stands empty for one month every two years, net income falls to roughly fifty-six thousand dirhams. Adding purchase costs to the price reduces the yield again, leaving a net figure closer to five and a half per cent. The example is simplified, but it shows how quickly costs erode headline numbers. Investors comparing properties should run the same calculation for each, using real service charge figures and realistic rents. The property with the highest gross yield is not always the one with the best net return.

Our view

Improved yields make completed properties more attractive for income investors. We help clients calculate realistic net yields and choose properties where income is sustainable.