Playbooks / Property
Short let versus long let in Dubai
Does a Dubai short let actually earn more than an annual tenancy?
A difference of AED 3,850 on the year, before the owner's own time, the furniture, the permit renewals and the guest who does not leave. The bars are close because the finding is that they are close.
The rule
The comparison is nearly always made on nightly rate multiplied by three hundred and sixty five, against the annual rent. That calculation has never been true for any property anywhere. What follows is the same comparison run net, with every statutory cost taken from the instrument that sets it rather than from a brochure.
The costs Dubai law actually imposes
These are not estimates. Each is set by a published Dubai instrument, and the ones that matter to the arithmetic are the last two.
| Cost | Amount | Set by |
|---|---|---|
| Holiday home permit, issue or renew | AED 300 per bedroom, capped at AED 1,200 a year | Resolution 49 of 2014 |
| Inspection, and re-inspection | AED 300 per unit | Resolution 49 of 2014 |
| Classification certificate | AED 50 per unit | Resolution 49 of 2014 |
| Tourism dirham, standard holiday home | AED 10 per occupied room per night | Resolution 2 of 2014 |
| Tourism dirham, deluxe holiday home | AED 15 per occupied room per night | Resolution 2 of 2014 |
Three things follow that most pages on this question get wrong.
The tourism dirham is charged per room, not per unit. A two bedroom standard holiday home accrues twice what a one bedroom does on the same night. It is collected from the guest and remitted to the Department, and it has to be paid before the sixteenth day of the month following collection.
The permit is per bedroom too, at AED 300 per bedroom and capped at AED 1,200 a year, which is the cap a four bedroom villa reaches and a studio never does.
You cannot bill the guest for utilities. There is an AED 2,000 fine for charging a guest for electricity or water. Cooling a Dubai apartment through August is therefore a cost of the strategy, in the month it is largest, and it is the single line most often left out of a projection.
The rest of the schedule is the shape of the regime rather than the shape of the arithmetic: an AED 5,000 fine for operating without a licence, an AED 500 fine for letting rooms or beds rather than the whole unit, and a doubling of any fine repeated inside a year. Permits run for one year and renew. Classification is deluxe or standard, and it is the classification that sets the tourism dirham.
The same unit, run both ways
One bedroom. The annual rent, the service charge and the nightly rate below are illustrative and yours will differ. Every deduction is either a rate you can go and quote, or a statutory figure from the table above. The arithmetic is computed by the build, not typed, so the totals cannot drift from the lines.
As an annual tenancy
| Line | AED |
|---|---|
| Annual rent | 105,000 |
| Service charge | (14,000) |
| Letting and management, 5% | (5,250) |
| Maintenance reserve | (3,000) |
| Vacancy allowance, 4% | (4,200) |
| Net | 78,550 |
As a standard holiday home, at AED 750 a night and 70% occupancy, which is 255 nights sold, at an average stay of three nights, so 85 turnovers.
| Line | AED |
|---|---|
| Gross, 750 x 255 nights | 191,250 |
| Operator and platform, 20% of gross | (38,250) |
| Cleaning, 85 stays at 150 | (12,750) |
| Utilities, cooling, internet, consumables | (18,000) |
| Tourism dirham, 10 x 255 nights | (2,550) |
| Holiday home permit, one bedroom | (300) |
| Service charge | (14,000) |
| Maintenance and replacement | (8,000) |
| Furnishing, 75,000 over five years | (15,000) |
| Total deductions | (108,850) |
| Net | 82,400 |
The short let grossed AED 86,250 more than the annual tenancy. It netted AED 3,850 more. A gap of eighty six thousand became a gap of under four, and the strategy that produced it also produced eighty five check-ins, a licence, a monthly filing and a furnished apartment that is harder to sell.
That is not an argument against short letting. It is an argument against comparing the gross figures, which is the comparison almost every projection puts in front of an owner.
Solve it backwards, which is the useful direction
Sort the short let costs by how they behave and the whole thing collapses into three numbers. On the unit above: 20% of gross goes to the operator, AED 60 a night goes on tourism dirham and cleaning, and AED 55,300 a year is fixed whether the unit sells three hundred nights or thirty.
From there two questions answer themselves.
At AED 750 a night, how full does it have to be to merely draw level with the annual tenancy? 248 nights, which is 67.9% occupancy. Every night below that, the annual tenancy was the better decision.
At 70% occupancy, what nightly rate has to hold all year? AED 732 a night, held all year. Not the peak rate in March. The average across the soft season too.
Neither number is comfortable, and neither is visible anywhere in a gross comparison. This is the same calculation as break-even occupancy, run on a cost stack that is roughly three times larger.
What occupancy is actually worth
Holding the nightly rate at AED 750 and moving only how full the unit is:
| Occupancy | Nights sold | Net, AED |
|---|---|---|
| 55% | 200 | 52,650 |
| 60% | 219 | 62,960 |
| 65% | 237 | 72,680 |
| 70% | 255 | 82,400 |
| 75% | 273 | 92,120 |
| 80% | 292 | 102,430 |
The annual tenancy nets 78,550 and does it without an occupancy assumption at all. Ten points of occupancy is worth about AED 20,000 here, which is why the operator's forecast is the number to interrogate hardest, and why an operator paid on gross has no reason to interrogate it at all.
The three firms that sell observed Dubai occupancy and nightly rates publish emirate-wide averages, and all three of them, run through this cost stack at their own published figures, land below the annual tenancy. Break-even occupancy sets out each one with its period, its source and the denominator it is counting, which is the detail that decides whether a quoted occupancy means what a reader thinks it means.
The question you will ask next
Does the rent cap apply to a short let? No. The RERA rental index governs renewal increases on an annual tenancy, which is a constraint on the long let and part of what makes its income predictable. The short let has no cap and no floor. See rent increase caps.
Does the service charge change? No. It is levied on the unit, not the use, and it is the same line on both sides of the comparison. What changes is your ability to absorb it in a soft quarter. See service charges and reserves.
What about VAT? Short term accommodation is a taxable supply in the UAE, and whether you cross the registration threshold is a question for the Federal Tax Authority rather than for a listing agent. It is not modelled above, and if it applies to you it moves the answer against the short let.
Can the building stop me? Yes, and this is the cheapest check on the list. Ask the owners association before you furnish, not after. It belongs in the same pass as everything in due diligence before an offer.
The part that is not financial
An annual tenancy is one signature and four cheques. A short let is a business: pricing, calendar, reviews, guest messages at midnight, a cleaner who did not show up, a permit to renew and a return to file every month. Paying an operator to absorb that is exactly what the twenty percent buys, which is why the comparison after paying an operator is the honest one for most owners.
Run it on your own numbers with the net rental yield calculator, which takes the long let side and gives you the figure the short let has to beat.
The resolutions behind the permit, the tourism dirham and the fines are listed, with what each sets in its own words, on the Dubai property law register.
The arithmetic
Where it breaks
- Occupancy is the assumption that decides the answer and it is the one most often taken from a best month rather than a full year. Model the soft season honestly or do not model at all.
- Dubai hotel occupancy is quoted in short let marketing as though it were a holiday home planning figure. A hotel has a sales team, a corporate rate card and a booking curve a single apartment does not, and borrowing its occupancy is borrowing someone else's business.
- The permit fee is charged per bedroom, so the three bedroom that looked like the better short let carries three times the permit of the studio beside it before a single guest arrives.
- The tourism dirham is legally a charge on the guest, but a nightly rate quoted all in on a platform means it comes out of your gross whatever the statute says about who owes it.
- You cannot recover utilities from the guest. Charging one for electricity or water is a listed violation with a fine attached, so cooling in August is your cost, in the month the unit uses the most of it.
- Furnishing is capital, not a cost of the first year. Spreading it over a realistic refurbishment cycle is what makes year one comparable to year five.
- Building rules and owners association rules can prohibit short letting entirely, and finding out after furnishing is an expensive way to learn it.
- Wear is higher and the reserve should be too. A unit turning over a hundred and eighty times a year does not age like one turning over once.
- It ignores the exit. A furnished short let unit is sold to a narrower pool of buyers than an empty apartment, and the furniture rarely returns what it cost.
- Regulatory treatment can change. A strategy whose margin depends on a current permit regime carries a risk that an annual tenancy does not.
When to use it
Before furnishing anything, and before believing a projected short let yield produced by a company that earns a percentage of the gross rather than the net. Also the day the annual tenancy comes up for renewal, because that is the only moment the switch is free.
The Net Rental Yield does this arithmetic for you, in your currency, in about thirty seconds.
Open the calculatorSources
- Executive Council Resolution No. (2) of 2014, approving the Tourism Dirham Fee in the Emirate of Dubai
- Executive Council Resolution No. (49) of 2014, fees and fines for leasing out holiday homes in Dubai
- Administrative Resolution No. (1) of 2020, the bylaw implementing Decree No. (41) of 2013 on leasing out holiday homes
- Dubai Department of Economy and Tourism, holiday homes
- Federal Tax Authority, value added tax
Last reviewed . Commercial relationship disclosure: the author works in Dubai real estate brokerage. See the disclosure standards. Disclosure standards.