Khaleej Times, January 29 2018
Apartments in affordable areas offer better yields than even global property hotspots
Despite the continued decline in property sales prices across most Dubai communities, rental yields are still attractive for investors.
Jumeirah Village Triangle (JVT) claims the highest rental yield for apartments in Dubai at 9.2 per cent, in spite of seeing one of the steepest declines in asking prices – down about 12 per cent, says the Propertyfinder Group.
This is followed by Discovery Gardens at 8.96 per cent, International City at 8.59 per cent, Dubai Investment Park at 8.73 per cent and Dubai Sports City at 8.29 per cent.
This compares to a rental yield of 3.4 per cent in London, 2.7 per cent in Tokyo and 4 per cent in Sydney.
“Dubai offers better rental yields due to the purchase cost per square foot of the property being considerably less as compared to other major cities around the world. This, in addition to the fact that many buildings are still relatively new, therefore the cost of maintaining them and/or the service charges are not so high, all contribute to higher rental yields,” explains Mario Volpi, chief sales officer, Kensington Real Estate.
Among villa communities, The Springs commands a market-leading 6 per cent rental yield, despite seeing a 6 per cent decline in asking prices, says Propertyfinder. Other communities offering good yields are Jumeirah Village Circle, JVT, The Lakes and Arabian Ranches.
“Typically, smaller properties produce better rental yields than larger ones,” he says. “Apartments are better than villas, and studios are better than larger apartments, for example,” says Lukman Hajje, chief commercial officer of Propertyfinder Group.
“The yield is better for an apartment due to its relative size. Apartments are also comparatively more popular as they are seen as more transient than villas. For the same reason about relative size, a studio offers great rental yields but only in areas where the cost of the apartment is seen as affordable. I’m referring to the actual purchase price rather than the cost per square foot,” adds Volpi.
Villas tend to attract more end-users and hence operate at lower yields than apartments. “Also, with villas, the property component is land and building. While the building portion would depreciate over 20 to 30 years, the land value stays intact. This also contributes to lower yields. Studios are typically an investor-driven asset type with tenants coming from the low to mid-income segment. Until these tenants have significant alternatives to become property buyers themselves, the yields for smaller residential units will remain high,” observes Manika Dhama, senior consultant in the strategic consulting and research department at Cavendish Maxwell.
Market observers also suggest that newer, emerging communities offer better rental yields than more established communities. Newer cities also offer higher rental yields than established cities, according to Propertyfinder.
“If investors are chasing rental yields, they should consider units in more affordable areas with good transport/infrastructure and close to amenities. They should be wary of the cost of maintenance/service charges, check the age of the building, what are the expenses, how is the management of the building run, what future expenditures are in the pipeline, etc.? All these extra costs will affect the rental yield going forward,” suggests Volpi.
“Investors should focus on the occupancy and associated operating expenses of the property. Also, if the property purchase is a pureplay investment, then who the investor assigns to manage the project also becomes an important factor,” cautions Dhama.