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Apartment for Sale in Dubai Vs. Villa – Which Nets Better Yields?

apartment for sale in dubai

Whether you’re looking for an apartment for sale in Dubai, or a villa; if you’re a property investor in the market to purchase real estate in Dubai, it’s in your best interest to know which property type nets the greatest returns on your investment. With the average investor seeing between 6-10% rental returns, it’s important to know how to get as close as possible to the top-end of that range for your investment property.

To lay the groundwork for this comparison, there are a few facts to discuss that may affect returns.

Occupancy Rates:

Typically, investors see higher occupancy rates when buying an apartment for sale in Dubai. There are a few reasons for this. Villa tenants are typically families with school-aged children. Their lifestyle restricts them from moving after the one year tenancy agreement is completed, instead, villa residents with stable careers tend to renew for an average occupancy of 4 years. Apartments seldom see these averages, which leaves chance that your investment property remains unoccupied for weeks or months, every year. Additionally, villa renters tend not to deal with issues that apartment renters often face; poor tower upkeep, loud neighbors and parking availability are all common reasons by apartment renters looking to change residence.

Service Charges:

Service fees in certain areas around Dubai can definitely make a dent in your net rental yields. Although not tied to property type, Villa community service charges tend to be less than apartment building service charges, but this is not a set rule. Service charges will depend on community services and common area maintenance needs; parking garages, landscaping, community pools, garbage collection, number of elevators etc. To learn about the different service charges around Dubai, you may contact us or visit the RERA Service Charge Index.

Capital Gains:

Although a discussion of capital appreciation of an investment property is not within the scope of this article. It remains a relevant point when discussing returns on an investment property. As a general rule of thumb, we should highlight that capital gains should be calculated separately when considering ROI. Dubai is one of the few cities in the world where it is possible to benefit from high running yields and significant appreciation of property value, there really is no trade-off. That being said, it is more reliable to use net rental yields as a profit indicator, rather than appreciated value – as the latter is never guaranteed. As a side, the average villa stays on the market longer than the average apartment for sale in Dubai.

Follow the Case Study below to get a glimpse of ROI calculations using real data, extracted from Reidin.

Using a data model of a 1000 sq. ft. villa and apartment in Discovery Gardens at the start of 2011, we’re able calculate the following average ROI:

Purchase price of a 1000 sq. ft. property in Discovery Gardens (2011)

VillaApartment
AED 844,000AED 489,000

 

Gross Rental Yields for property in Discovery Gardens (2011-2015)

YearVilla Yields (AED)(%)Apartment Yields (AED)(%)
201147,000641,5008
201252,300636,2007
201357,500740,8008
201463,700852,90011
201566,000872,90015

 

Average Occupancy Rates for property in Discovery Gardens (2011-2015)

YearVilla (%)Apartment (%)
20119592
20129592
20139592
20149592
20159592

 

Annual Service Charges for 1000 sq. ft. property in Discovery Gardens (2011-2015)

YearVilla (AED)Apartment (AED)
201134804500
201230604500
201322808520
201419207740
201519807680

 

Net Rental Yields for 1000 sq. ft. property in Discovery Gardens (2011-215) – Adjusted for Occupancy and Service Fees

YearVilla (%)Apartment (%)
20114.906.96
20125.545.96
20136.226.07
20146.958.50
20157.2112.27

 

Average 5-year Net Return on Investment

Villa (%)Apartment (%)
6.167.95

As the data shows, buying an apartment for sale in Dubai as an investment property nets higher rental returns when compared to a villa of the same size and location. Although occupancy rates are lower and service charges are higher with apartments, the higher ROI can be attributed to consistently increasing demand for affordable rental apartments in recent years which, ultimately, drives up rental rates. Interestingly, the capital appreciation of each of our data models was as follows:

Capital Appreciation of 1000 sq. ft. property in Discovery Gardens over 5 years (2011-2015)

Villa (%)Apartment (%)
6055

 

To make the most of your real estate investment or inquire about your property purchasing options, you may contact us here to speak with a property consultant.



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