Overseas property

Tranio client’s story starts with investing in hotel units and ends up by moving in Dubai

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Initially, Maria and Arthur viewed Dubai only as one of possible locations where they could invest in real estate and earn high yields. Consulted by Tranio’s manager, the couple chose hotel apartments in the same luxury complex where a Russian celebrity bought the rental property. Then, the clients decided to visit Dubai and close the deal onsite.

During the trip, the couple’s opinion of Dubai changed instantly. Maria and Arthur have fallen in love with the city, invested in another two rental properties, and eventually decided to find a home for themselves. Currently, the two are looking for a place for a long-term stay.

Why would one invest in Dubai instead of Europe?

Maria and Arthur learned about Tranio a couple of years ago when they were looking for a property in Europe. The clients recalled how they had come across the company’s articles and analytical reports. Their first deal, assisted by Tranio two years ago, included a rental apartment in Germany. When the two had decided to invest in Dubai, they contacted Tranio for the second time.

During the COVID-19 pandemic, the couple considered selling their investment flats in Moscow and investing in property abroad. Maria and Arthur felt that foreign real estate can be a more reliable asset than their Russian properties. The investors looked for a crisis resilient market where private ownership was well protected and the rent was paid in stable currencies. Being the citizens of Armenia, our clients never bound their main business and investment interests to the home country’s market only.

Instead of searching for investment property in Europe yet again, Maria and Arthur decided to look for a country with easier compliance procedures. Their previous investment in Germany required a background check that had lasted longer than a year.

The investors chose Dubai because of its potentially high returns and convenient procedures. Banks in Dubai conducted the application check way faster and transferred funds for a property purchase in a few days after the approval.

The couple selected a rental flat in Dubai quickly because Maria and Arthur had already closed numerous deals in the property market. As experienced investors, the two assessed the yield potential of available units, checked the information on location along with recent photos and videos. The deal was closed in just two days after the initial inquiry.

5-star serviced apartments with a celebrity investor

Our clients opted for a serviced apartment in a luxury estate managed by Dubai’s largest developer. Located in Dubai’s Downtown, the residence offers a spectacular overview at the heart of the city — the Burj Khalifa Tower and the Dubai Music Fountain.

In May 2022, the average cost of an off-plan apartment in the project was about a million US dollars. The residence is to be commissioned in 2026 with fully furnished apartments designed in art deco style. The internal infrastructure includes an outdoor swimming pool, gym, library, lobby and shops.

The developer forecasted that the property value would increase by 40-50% by the delivery time in 2026.

While considering the developer’s offer, our clients found out that a famous media person had invested in this project. It was another reason to expect high demand for the property.

At the final stage, the investors decided to come over and sign the papers in person. Their travel plan included a property show and brief city tour with Tranio’s manager Xenia who arranged the deal and all the proceedings.

Fountains in Dubai
pio3 / Shutterstock

Next stop: hotel units in Business Bay

After taking a property tour in Dubai, Maria and Arthur started weighing up the options of investing in another project in the emirate. For the next investment, the clients looked for a property that would generate a return in the near future. The two discussed the available options with Xenia and settled on buying rooms in an operating hotel.

Property for sale in Business Bay 33 listings on Tranio

The couple selected two units in a spa hotel located in Business Bay. The hotel provides luxury spa and wellness services as well as includes onsite bars, cafes, restaurants and boutiques. The investors appreciated the general concept, high occupancy rate, positive customer feedback and high ratings at the popular booking platforms.

The hotel was already serving guests when it attracted investors. The price started from 235,000 US dollars for a hotel unit. As a part of the deal, the property owners can stay in the hotel for 15 days per year with no extra charge.

Hotel bookings, guest relations and related tasks are carried out by a concierge service operator partnering with the developer. The property owners are not involved with rent arrangements or maintenance issues.

The developer offered two payment plans under a property management contract. The first option was a 5-year instalment plan for a guaranteed yield of 8% per year. The second was an upfront investment with a 20% discount and a share of the actual rental income.

Our clients went for the second option as it had promised higher yields in the near future. The investors expected to see the rental yields of 12-13% in the first 3-4 years following the hotel premiere. Such returns would be driven by pent-up demand after the pandemic as well as all-time high interest in new boutique hotels.

In a long-term perspective, the rental yields might sink due to high competition in Dubai’s hospitality industry. Media attention to brave new developments would draw demand to the prospective competitors.

In 5 years from now, the rental yields on the discussed units in Business Bay might drop to some 5-7% per year. Therefore, Maria and Arthur were taking more risks in order to pursue a high return-on-investment.

What investors need to know about hotel units in Dubai

Hotel units are a popular type of investment property in Dubai. Many units are owned by foreigners willing to receive a stable rental income without being involved with the property management. Buyers looking for investment properties in Dubai from abroad need to consider the general market rules.

  • Hotel units have higher occupancy rates compared to other rental apartments. All hotels invest in promotion and guest retention, while international chains maintain good return-on-investment by the established brand.
  • Hotel units are rented for short-term in a hotel business model. Unit owners are not involved with property management or guest relations.
  • Hotel units in Dubai can generate up to 13% in net yields per year. Although rental income is not taxed in the UAE, foreign owners need to pay the taxes in the country of their tax residency.
  • Unit owners can stay in the respective hotels for free in a certain period. Usually, the granted period is from 15 to 30 days per year.
  • Hotel units can be owned in shares. This comes foremost to the luxury hotels where a standard single unit costs about 800,000 US dollars.

What to look out for when buying a hotel unit

  • Hotel dedicates a smaller share of profit for the payment of “guaranteed income”, while it keeps a larger share for itself. For example, the net yield of 12% would be distributed between the hotel and investor in shares of 7% and 5% respectively.
  • Payment based on the actual yields should normally be higher than a guaranteed income. Yet the investors take high risks in this model: their income depends on the current occupancy and performance.
  • Major hotel chains offer long-term contracts with guaranteed yields with no option to index payments when the market goes up.
  • Hotel units with a fixed yield contract are not attractive for second-hand buyers. Under the contract terms, a new owner would get the same annual yield as the first-hand buyer. If the property price went up, a second-hand owner may get a ROI below the market average.
  • Some sellers include prospective payments to unit owners in the initial property price. The higher the offered fixed income, the more likely it is paid with the buyer’s own money. When such a contract expires, the yields drop dramatically.
  • Hotel units are rental properties for commercial use. The owners cannot live in the hotel unit permanently as in a residential property even after the initial management contract expires. Usually, owners are allowed to stay in a unit for no more than 30 days in a year.

First impressions of Dubai inspired the couple to relocate

While travelling to Dubai, Maria and Arthur thought about staying in the city on a long-term basis. The two had never been in Dubai before and were fascinated by the unexpected level of comfort and safety provided by the Emirate.

The property investors are now looking for their own place in Dubai. For the clients’ request, Tranio’s manager Xenia is reviewing on-sale villas in one of the city’s upmarket green areas.

Houses for sale in Dubai 26 listings on Tranio
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    Tranio’s managers offer advice on buying real estate overseas
    Marina Filichkina
    Marina Filichkina
    Head of Sales
    +44 17 4822 0039
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