Why a 6.5% brochure yield is really 4.9%
Almost every yield quoted to a buyer in Dubai is a gross yield. It is the annual rent divided by the purchase price, with nothing taken off. It is not wrong, exactly. It is simply not the number that reaches you.
Take a 1,000 square foot apartment bought at AED 2,000,000, about USD 545,000, and let at AED 130,000 a year, about USD 35,400. The gross yield is 6.5 per cent, and that is the figure that will appear in the presentation. The dirham is pegged to the US dollar at 3.6725, so the dollar figures here hold steady.
The first deduction is the service charge
Service charges are billed on each square foot of your unit every year. The budget is approved annually by the regulator through the Mollak system, and the approved rate is set building by building. Mid market towers commonly sit in the teens. Prime waterfront and branded buildings clear AED 25 to AED 35. A handful of landmark towers are far above that. There is no single Dubai rate, which is precisely why the city average is useless to you and the approved figure for your building is not.
On our 1,000 square foot apartment, AED 15 per square foot is AED 15,000 a year, about USD 4,100. In a branded building at AED 30 it would be AED 30,000, about USD 8,200, on exactly the same rent. That one difference is worth more than half a percentage point of yield, and it is why two apartments with identical rents are not identical investments.
The second deduction is the time it sits empty
A yield that assumes twelve months of rent every year assumes you never lose a tenant. One month empty between tenancies costs about AED 10,800, roughly USD 2,900, on a rent of AED 130,000. If you would rather not assume that, run the number both ways so at least you know what it would do to you.
What is left
Rent of AED 130,000, less AED 15,000 of service charge, less one month empty, leaves about AED 104,000, or roughly USD 28,300. Against the purchase price that is 5.2 per cent. Against what you actually paid, including the transfer costs in my previous article, it is 4.9 per cent.
And that is before the letting agent, the tenancy registration and anything that breaks. A gross figure of 6.5 per cent is a net figure comfortably under five.
What I would do before signing anything
Ask for the approved service charge for that specific building, not the community average and not the estimate from the launch brochure. Off plan units often have no approved budget yet, so the launch figure is an estimate, and the settled figure once the building is running is frequently higher. Then rebuild the yield yourself on the rents that comparable units in the same building have actually achieved, rather than the rent the brochure projects.
That is the whole reason Ledgard exists. The report starts from registered transactions and the approved charges for the building, so the yield you see is the one that survives contact with the year.
Service charge rates vary by building and are approved annually. Confirm the current approved figure for any specific building before relying on it.