What it costs to hold a Dubai apartment

Every listing quotes a gross yield: the annual rent divided by the price. It is a useful number for comparing two apartments and a poor one for deciding whether to buy either. What an owner keeps is the net figure, and the distance between the two is set by costs that are published and knowable before a cheque is written.

The first costs are paid once. The Dubai Land Department charges a transfer fee of four per cent of the price on registration, with modest administrative fees besides; the buyer customarily pays it, though a seller may agree to share it. A broker's commission on a sale is customarily two per cent. A mortgage, if there is one, carries a registration fee of a quarter of a per cent of the loan with the Land Department, and the bank's own valuation and arrangement fees. Together these add roughly six to seven per cent to the purchase price, which an owner recovers only over the holding period or at resale.

The second costs recur. Service charges are the largest and the most variable: they are set per square foot, approved annually by the Real Estate Regulatory Agency, and published in its service charge index, building by building. A tower with a pool deck, a concierge and a gym costs more to run than one without, and a well-located older building can be cheaper to hold than a new one with every amenity. Cooling is often billed separately through a district-cooling provider, with a capacity charge that is payable whether or not the apartment is occupied. Before buying, ask for the current year's approved charge and the cooling tariff, and read both against the rent.

The third cost is time. Each tenancy is registered with Ejari, a lease carries a renewal cycle, and between tenants there is a vacancy of some weeks for cleaning, minor works and letting. An allowance of one month's rent in twelve for vacancy and another for maintenance is a conservative habit. A letting agent's fee, where one is used, is customarily five per cent of the annual rent.

Put together, a gross yield of seven per cent on a serviced tower is commonly a net figure of between four and five once service charges, cooling, vacancy and management are counted, and lower still in the first years while the entry costs are amortised. None of this argues against buying; the market's depth and its absence of annual property tax remain its case. It argues for buying on the net number, and for reading the service charge index before the brochure.