What an apartment on Palm Jumeirah returns: studio 7.1%, one-bedroom 5.8%

Palm Jumeirah is the showcase of Dubai letting and its figures get quoted most often. Here is the calculation on two unit types with all costs deducted.

Studio

• Purchase: AED 1,400,000
• Rent at the lower end of the market: AED 14,000 a month, 168,000 a year gross
• After management commission and running costs: about 100,000 in hand
• Yield: 7.1%

One-bedroom

• Purchase: AED 2,500,000
• Rent: AED 20,000 a month, 240,000 a year
• After the same deductions: about 144,000 in hand
• Yield: 5.8%

Why the smaller unit yields more

This is a pattern, not an accident of these two properties. Price rises faster than floor area and rent rises more slowly: studios and one-bedrooms are taken by different tenants, and they do not pay in proportion to square feet. So in any district of Dubai, yield is inversely related to lot size.

The small format has a downside too: higher tenant turnover, more frequent voids, more wear. Part of the yield difference is the price of that hassle.

The 25% management commission

It is a high number and it is explained by the format: a significant share of housing on the Palm is short-let, and short-letting is an operating business. The operator takes on check-ins, cleaning, linen, listing platforms and the licence. On a long let a Dubai manager usually charges 5–10% — but the rent is lower too.

On leverage

With a fifteen-year mortgage the monthly payment on properties like these comes out noticeably below the net rental income, leaving up to half the income with the owner. That works while the loan rate is below the asset's yield; when the relationship reverses, leverage starts eating the flow.