Are holiday homes gaining popularity in Dubai?

With the advent of AirBnB, Lyft and a recent local launch, Urent, coined the “AirBnB for cars”, you will have heard the term “the sharing economy” by now.

With a rise in costs for traditional necessities like housing and transportation and the decrease in the millennials’ and Gen X’s want for being burdened with such expenses, sharing these resources has become a multi- billion dollar sector globally. While AirBnB and Uber were the first-movers in this category, a multitude of companies have since cropped up.

As the fourth most visited city in the world in 2018, and the first in terms of overnight visitor spend per day, Dubai is more adept at adopting and customising global ideas for the local market.

As far back as 2016, Dubai Tourism announced a partnership with AirBnB in order to promote ‘responsible hosting’. Many landlords have turned to this newer trend in an effort to rent out their properties for more than they traditionally would in the residential market.

Due to the expected popularity for holiday homes as Expo 2020 approaches, a number of commercial players have entered the market, all promising to do everything from applying for the necessary local permit to legally host guests to doing the laundry after visitors stay in your home.

While the presence of a third party takes the “peer to peer” element out of the equation, some are willing to pay for such conveniences as they may reside outside the country. Convenience comes at a price as management fees can rack up to 15 to 17 per cent of what you stand to earn, although many in this space are claiming the payout is worth it.

Earlier this year, Knight Frank took a look at the annual daily rate per month from July 2017 to June 2018 and found that there was up to a 180 per cent premium for holiday homes compared to standard hotel rooms in Dubai. For instance, in June 2018, the average daily rate for a hotel room was just over Dhs300, while the average daily rate for a holiday home in the same month was just over Dhs900.

As investors have rushed to capitalise on what is a newer, and now regulated, practice in Dubai, the economics behind the holiday homes trend have not exactly remained favourable. RevPAR (revenue per available room) for hotel rooms compared to holiday homes showed an inversion from June 2017.

While revPAR for holiday homes peaked for a six month period, June to December 2017, revPAR for traditional rooms took a dip in the same period.

However, since late 2017, revPAR for holiday homes went from Dhs500 down to around Dhs100. Hotel rooms saw revPAR peak to Dhs700 in January 2018, with revenue settling to Dhs300 by June 2018, still around three times more than holiday homes.

The trend is still relatively new here, but as we look to the future, the sharing economy is set to grow to $325bn globally, by 2025, according to Forbes.

According to Data Finder, an insights and data platform under the Property Finder Group, the amount of residential supply expected as we approach the opening of Expo 2020 is currently 45,595 units.

All of these are under construction and are at least 80 per cent completion or more. Although materialisation rates are often about half of what is projected, the sheer amount of incoming units will continue to have an impact on prices at current demand levels. Similarly, there are currently 95 hotel projects that are actively under construction and due to be completed sometime between 2019 and 2021. These projects will add 29,310 keys to Dubai.

With the expectation of 25 million visitors during the six month Expo, Deloitte predicted that an additional 50,000 hotel rooms would be needed to accommodate all of the guests. Considering how often residents travel in and out of Dubai, the timeliness of the Expo and the take off of the sharing economy locally, these factors present unique opportunities for many to earn where they otherwise thought they would only spend.

Carla Maria Issa is a senior research analyst at Property Finder