Nabni Developments: how to calculate rental yield honestly, on an Al Furjan example

Yields in Dubai are quoted constantly, and almost always the gross figure. It is the simplest and the least useful of the three. Here are all three, worked through on an ordinary mid-market apartment.

Gross yield

Annual rent divided by price. It takes a second to calculate, accounts for nothing, and is only good for screening out the obviously uninteresting. This is the number in the sales presentations.

Net yield

The same fraction, but with everything you actually pay deducted from the rent:

• The service charge, plus the community charge if there is one.
• The cooling capacity charge, if it falls on the owner — it runs even when the apartment is empty.
• The letting agent’s fee each time you let.
• Management, if you are not in Dubai.
• Maintenance and minor repairs.
• Voids — an honest adjustment, not zero. One empty month a year takes eight per cent off your income.

After these deductions the gap between districts often narrows, and sometimes reverses: an expensive district with a low service charge can beat a cheap one with a high charge.

Return on invested capital

The most useful and the least often calculated. It is net income divided not by the property’s price but by the money you have actually put in. It matters in two cases:

• With a payment plan. Until you have paid in full, you have invested less than the price — so the return on what you invested is higher. But the obligation continues, so calculate it over the whole period, not for one good year.
• With a mortgage. Here you deduct the interest and account for the fact that part of each payment repays principal, which comes back to you. That is not an expense but money moving from one pocket to another — and this is where people most often go wrong, in both directions.

What none of the three shows

• Entry costs. The transfer fee, commission and the rest amount to several per cent that have to be earned back before you count any income.
• Exit costs and time to sell. A property that takes nine months to sell carries a cost that shows up in no yield figure.
• Price changes. Yield is about rent; capital growth or loss is calculated separately and should not be mixed into the same number.

What to check in a specific deal

• Actual rents within a few hundred metres, from live listings rather than district averages.
• Service charge per square foot in completed buildings, with its history.
• The cooling arrangement, and who pays the capacity charge.
• How many apartments nearby are handed over in the same years — that is the ceiling on your rent.
• The distance to the metro, which in Al Furjan noticeably moves both rents and resale prices.

Based on live listings and the Dubai Land Department transaction register.