An empty unit or lower rents — which way to go?
With lease rates getting more competitive, landlords need to tread carefully to maintain a decent ROI
Today’s tenants have more choice in terms of availability of property across Dubai, with some traditional letting hotspots coming under pressure from newer communities offering better value or more amenities. In this market, the most important consideration for landlords in maintaining a decent return-on-investment (ROI) is ensuring the property is occupied and to avoid long vacant periods. A vacant property loses 1 per cent of its annual rental income for roughly every three-and-a-half days it is vacant. “That is 2 per cent for every vacant week and just more than 8 per cent for every vacant month. Void periods can really add up if a property is overpriced and sits vacant for months on end, ultimately costing landlords far more than a 10 per cent reduction in rent would have cost them if they had marketed the property at the current market price from the start,” says Richard Waind, director of brokerage for Better Homes.
Market conditions
The obvious dilemma for landlords is that the length of a void period is an unknown factor. That is why it is important to take independent professional advice on the marketing price of a property and remember it is always better to have a quality tenant than go too high on price and suffer a long void period. According to Rakesh Mirchandani, director at
KGR Real Estate, “I think the key factor is essentially the market rate or the market situation that keeps changing. The landlord has to pay service charges, utility bills and possibly insurance and mortgage payments. A good investment in property is when the rental income is used to cover the aforementioned costs, leaving with a percentage of the rent as income. “Leaving a property vacant for a month is equivalent to a loss of 8.33 per cent of the yearly rent! A property that is vacant for long is often ignored and can fall into disrepair.” If a landlord decides to not drop the rent, Mirchandani advises them to consider alternative incentives such as a rent-free period, flexibility in the number of cheques, free maintenance or even to include appliances or furniture.
Quality tenants
With more units coming into the market, savvy landlords should take advantage of the situation to attract quality tenants, rather than digging their heels in over historical rents. Rajiv Ghanekar, senior real estate broker at Keller Williams Real Estate Dubai, says landlords must take proactive steps and approach existing tenants and find out about their renewal plans. They should offer revised rents, which are in tune with the current market. “Being a landlord is a business in itself; ensure that your unit, when vacant, is in top condition and your pricing and terms are better than the rest. With new supply catching up very quickly, your today’s so called discounted rate will be tomorrow’s market price — so stay ahead of the market and grab that business.”