Dubai Hotel Rooms and Apartments - The Pros and Cons

In a perfect world, most property investors want to receive a high net rental yield along with capital growth without having any involvement in the day to day running of the property

A passive income without any hassle

Dubai developers have been offering this type of investment for the past 15 years by building and then selling branded hotel rooms and serviced apartments to individual private investors with the promise of high returns and a regular income without any hassle.

The fact is that very few of these investments work out as hoped with the negatives far outweighing the positives in most cases.

The Pros

• Very little hands-on involvement for the owner – pay for the property and then sit back and wait for the money to arrive

• Full management of tenant/guests

• Maintenance is taken care of – in-house teams take care of all maintenance issues

• High-quality property and facilities

• Good location – most hotels and serviced apartments are in high-end locations where there is demand from tourists and visitors

• Free nights and offers to owners – many operators offer owners a limited amount of free stays

• Guaranteed returns and with some offering buyback guarantees

  The Cons

• High price in comparison to a normal residential property

• Difficult to resell – a limited market for this type of investment and the resell price will be totally dependent upon the net income received.

• No mortgages available in most cases

• Very little transparency on costs and fees – investor is last in line for their share of whatever income is left after all expenses have been deducted.

• Sales and purchase agreement is almost always skewed in favour of the operator and the developer

• High management costs – the investor has no control over the costs including refurbishment costs, staff, marketing, utilities and the amount the operator charges to manage the property

• Hidden and unforeseen costs are the responsibility of the investor

• Low returns – investor only receives an income for the room rate and not from the food and beverage sales or other revenue that the operator can generate – this will be net of housekeeping, laundry, maintenance, marketing, travel agent and booking fees, local taxes etc

• Income is dependent upon the success of the operator and their ability to market and obtain the highest possible room rates at all times

• Rates and therefore, income varies enormously with low and high seasons.

• Guaranteed returns and buyback agreements always have limitations and caveats attached to them.

• Rental guarantees are built into the original sales price

• The overall investment is dependent upon the financial strength of the operator and their ability to generate income

• Restrictions on exiting any agreement with the operator

• Few to zero alternative revenue streams available to the owner

In summary, there are always exceptions to the above with some success stories over the years, but in my experience these are few and far between. For sure, there are far better property investments available in the market where investors have greater control, enjoy higher yields and growth with more options on how their property generates income and still with minimal  hands-on involvement

 Always happy to discuss individual cases of the successes and failures with you in person or over the phone.