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Best opportunity for investors as UAE rental yields hold strong as property prices fall
Despite the continued fall in prices across most communities, one data point is a bright spot in the real estate landscape: rental yields are staying relatively consistent, and healthy, across the Emirates.
According to Propertyfinder Group, The Springs, the most sought-after area to rent a villa, still commands a market-leading 6% rental yield, despite seeing a 6% decline in asking prices.
Jumeirah Village Triangle (JVT) claims the highest rental yield for apartments in Dubai at 9.2%, in spite of seeing one of the steepest declines in asking prices — down about 12%.
Rental Yields – The Most Important Factor to look at before buying Property
A property’s potential rental yield is one of the most important considerations before deciding to buy, for everyone from aspiring real estate investors to the seasoned pros.
Propertyfinder Group ranked communities for rental yield potential in its most recent edition of Propertyfinder Trends. While there are rumblings that the market is finally bottoming out as Dubai squares off going into Expo 2020, it has not happened yet, with prices still in decline. But one metric remains upbeat: rental yields held steady in Q2 and Q3 of 2017, with no more than a percentage point change in most areas.
For comparison when taking a look at these charts, consider that London claims a rental yield of 3.4% per square foot, Tokyo, 2.7%, and Sydney, 4%.
Rental Yield Explained
Rental yield is the rental income (the money a tenant pays to the landlord) as a percentage of the property’s value. It is fairly simple to calculate:
Total annual rent divided by the property purchase price (or value) = gross rental yield
Total rent minus property expenses divided by the property purchase price (or value) = net rental yield
The result should be multiplied by 100 for the net rental-yield percentage.
For investors buying purely for earning income, who are less concerned about growth, rental yield is the most important consideration.
Rental yields are determined by a number of factors, according to Lukman Hajje, Chief Commercial Officer of Propertyfinder Group.
“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.”
“But also consider location. Newer, emerging communities offer better rental yields than more established communities. Newer cities offer higher rental yields than established cities,” he says.
For proof of that, look no further than the UAE.