Why you should bet on serviced apartments in Dubai

dubai - Investors in serviced apartments are eyeing sustained tourism growth in Dubai

Serviced/hotel apartments have traditionally been more expensive to buy compared to standard residential units in Dubai. They also offer higher yields to investors, especially if managed by an internationally branded operator.

Serviced apartments are usually occupied by business travellers, relocating families and leisure GCC families. Serviced apartments are a great way for newcomers to get settled in Dubai as they provide more flexibility to the tenant - fully furnished and monthly rent payments also include utility bills and cleaning services.

There are approximately 15,000 freehold completed serviced apartments in Dubai, with 30,000 units expected to enter the market over the next five years, according to a new GCP-Reidin report.

Investors in serviced apartments are betting on sustained tourism growth in Dubai.

With the recent shift in focus to expanding the UAE's family leisure attractions, the need for more serviced apartments is being felt more than ever. Dubai's increasing number of family-friendly theme parks and outdoor adventures and festivals are drawing an increasing number of travellers to the region for extended periods of time. Demand for serviced apartments is likely to continue to rise in the coming years.

"The expected surge in serviced apartments reflects the optimism regarding tourism numbers and is in line with the increase in hotels throughout the city as well," says Hussain Alladin, head of IR and research at Global Capital Partners.

However, supply numbers may shift as developers adjust pipeline depending on market conditions. But, the actualisation rates in the serviced space is likely to be much higher than in the residential space.

Government Related Entity (GRE) developers (such as Emaar, Vida, etc.) account for 34 per cent of existing stock in the serviced/hotel apartment space, and this number is expected to reduce to 19 per cent by 2021. GRE developers are expected to focus on the upper end of the market, leaving the private sector to cater to the mid-income segment.

Within this asset class, there is a variance in price premiums, depending on which community you choose to buy in.

Ready serviced apartments in Downtown Dubai and Dubai Marina trade nearly double the price of their non-serviced counterparts. However, on the Palm Jumeirah, they enjoy only a 38 per cent premium, according to the report.

"The lower premiums witnessed on the Palm Jumeirah may be a result of a confluence of factors, including but not limited to the fact that there is a steady pipeline of off-plan projects that will likely pivot prices higher," added Alladin.

There is also variance in prices between the off-plan and ready space in this asset class.

In Palm Jumeirah, ready serviced apartments trade at a discount to their off-plan counterparts by an average of 20 per cent. The reason for the premium in off-plan units are rental guarantees and extended payment plans offered by developers.

Off-plan serviced apartments in Business Bay are also more expensive than their ready counterparts. "This indicates that in Business Bay, the quality of serviced apartments is generally increasing with better brand names now coming in," Alladin concludes.

- deepthi@khaleejtimes.com