Dubai, the global tourist catcher, welcomed more than 6 million visitors between January and April of 2023. This number grows every year as Dubai becomes more and more attractive to tourists around the world.
But where do all these people stay? In holiday homes, hotels, and places alike.
It makes buying a hotel apartment in Dubai a highly profitable investment for local and foreign investors.
Therefore, in this article, we will discuss everything you need to know about how to buy hotel apartments in Dubai, including costs, legal matters, benefits, and whatnot.
A Brief Overview of Hotel Apartments in Dubai
Hotel apartments (or hotel rooms) are commercial accommodations rented out for a short period. They are a popular investment option in Dubai because of the high influx of tourists and business visitors.
Since they are part of a hotel, they offer many amenities and facilities besides simple lodging. Hotel apartments are looked after by a property/hotel management company, and the investor gets a share of the profit every time they’re rented out.
These rooms feature luxury furnishings, housekeeping services, presence in high-end localities, security, fitness centers, recreational experiences, and more.
The more luxurious or primely located the hotel is, the higher the apartment will cost. As a result, it will also yield a higher rental income.
In short, hotel apartments in Dubai are real estate establishments you can purchase as single units or multiple units to rent out to tourists and business visitors coming to Dubai.
Top 6 Benefits of Buying Hotel Apartments in Dubai
Investing in a Dubai hotel apartment is fruitful in different ways. Here’s what they are:
Regular Income
Since Dubai has a booming hotel market, an investment in a hotel apartment can create a stable income stream throughout the year.
Passive Investment
Perhaps the best thing about investing in a hotel apartment in Dubai is that you don’t have to manage it. The hotel management looks after the apartments and is responsible for all the upkeep, maintenance, marketing, and tenant problems.
Better Returns
Investment in Dubai’s hotel apartments generally yields better returns than other investments of a rental nature (like regular apartments).
Capitalization of Tourism
Dubai has no shortage of tourism. A serviced hotel apartment in Dubai will make money for you for many years to come.
Prime Location
Naturally, hotels are located in Dubai’s most expensive and prime locations. It means a quick appreciation of your property price over a few years.
Access to a Hotel Room
When you own a hotel apartment, you can use it yourself for specific days throughout the year. It allows you to save money on your trips to Dubai and access hotel amenities for free.
3 Common Drawbacks of Buying a Hotel Apartment in Dubai
As a responsible real estate service provider, it is our responsibility to mention the drawbacks of investing in a hotel apartment in Dubai. However, the pros of owning a hotel apartment outweigh its cons.
Management Costs
When you buy a hotel apartment, you enter into an agreement with the hotel management. They take a cut out of your rental income for managing the property.
Seasonal Downturns
Hotel apartment income relies heavily on tourism. There are off-peak times throughout the year when the tourist influx is low, which can result in rental income fluctuations.
Economic Fluctuations
The tourism industry is vulnerable to global economic fluctuations like pandemics, wars, travel restrictions, etc. Even though it happens rarely, you should consider it before investing in a hotel apartment in Dubai.
Key Considerations Before Investing in Hotel Apartments in Dubai
The following are some key elements to consider before you buy a hotel apartment in Dubai.
Location
Even though most hotels are located in prime districts, it is still essential to consider location before investing. The location will affect everything from the occupancy rate to rental income and future appreciation.
Reputable Hotel Management
Hotel management can make or break your investment and profitability.
The reputable hotel management will develop goodwill with current and future customers, ultimately improving the rent and occupancy rates of the property.
Understanding the Revenue Split
Before investing, you must take your time to thoroughly understand how the profit will be divided between you and the hotel management. Make sure it is included in the terms of the contract.
Understanding of Freehold Areas in Dubai
If you’re an expat, you must learn about the freehold zones. They are dedicated areas for people who wish to invest in real estate as non-UAE residents.
Legal Matters
Investing in real estate involves legal considerations you must be fully aware of. But since this point requires a detailed discussion, we have explained it below.
Legal Considerations of Investing in Dubai Hotel Apartments
Before putting money on the table, here are some things you should know regarding the legal matters of owning a hotel apartment in Dubai.
A Hotel Apartment in Dubai is a Jointly Owned Property
Firstly, a hotel apartment/room is simultaneously owned by two parties, i.e., the hotel management and you (the investor). Therefore, it is categorized as a jointly owned property.
You should take some time to thoroughly understand the rights and responsibilities of both parties, as stated in Law no. (6) of 2019, regarding jointly owned properties in Dubai.
Must be Licensed with DET
DET stands for Department of Economy and Tourism. Since hotel apartments are buy-to-let properties, they must be licensed by the DET. This license permits the usage of a hotel room as a short-term rental property.
Registration with the Dubai Land Department (DLD)
You must register any type of real estate transaction in Dubai with the DLD. It is a seal of validity that will protect you from legal hiccups. It involves a property registration fee and signing a Sales and Purchase agreement (SPA).
Emirate ID, Passport, and NOC
You need an Emirate ID or Passport to transfer the title deed to your name. Additionally, if you purchase the hotel apartment directly from the developer (off-plan), you must have a No Objection Certificate (NOC).
How to Buy Hotel Apartments in Dubai
The safest way to purchase a hotel apartment in Dubai is to consult an expert real estate agent or firm. Even though it might cost you a little bit in fees, it will protect you from expensive mistakes.
An experienced real estate agent/firm will know the latest market trends to help you choose the best hotel apartment.
Your job is to ensure that you’re consulting with licensed professionals with a proven track record.
Reading testimonials will also help you choose the right consultant. You can also ask for their portfolio and see if they have dealt with hotel apartments before.
An easier way is to get help from real estate firms like Orchid Homes. Not only do we have competitively-priced listings of hotel apartments, but they also seek assistance from expert, licensed real estate brokers.
In short, you can access any service you need on a single platform.
How to Rent Out Hotel Apartments in Dubai
Luckily, the hotel management is responsible for marketing, listing, and renting out your hotel apartment to interested customers. They decide rates based on factors like location, amenities, market conditions, demand, and facilities.
Cost Breakdown of Running a Hotel Apartment in Dubai
In addition to the legal considerations, the cost considerations require an in-depth discussion. You must be aware of different expenses to determine whether it will be a profitable venture for you.
Here’s a breakdown of the costs of owning a hotel apartment in Dubai.
Transfer Cost
You must pay a one-time transfer fee whenever you buy or sell a property in the UAE. It is currently 4% of the property value. Both the buyer and the seller split it evenly.
Municipality Cost
You also have to pay a monthly fee to Dubai municipality. That said, you’ll have to pay 10% of the monthly revenue generated for a hotel apartment.
Value Added Tax
Value-added tax is also applied to hotel apartments because of their commercial nature. An investor must pay 5% of the property price as value-added tax (VAT) to the Federal Tax Authority (FTA).
Miscellaneous Taxes
You may also have to pay some other taxes and fees as an investor in a hotel apartment. The percentage usually varies depending on the income generated.
Some examples of these miscellaneous taxes are:
- City tax (6-10%)
- Tourism fee (6%)
- Tax on the room rate (10%)
FAQS
- What is the role of hotel management when it comes to hotel apartments?
Hotel management’s job is to look after clients, handle bookings, do maintenance, and market your hotel apartment. It is a key benefit that turns your investment into passive income, but you have to pay the management a portion of the profits.
- Can I access the hotel apartment myself?
As an owner, you are allowed a certain number of days each year to access the hotel apartment. Your agreement with the hotel management will dictate the exact terms and conditions.
- How can I exit from hotel apartment investments?
You have a few options if you want to exit from your hotel apartment investment in Dubai. They are:
- Selling it on the secondary market,
- Discussing an exit strategy with the hotel management company.
Conclusive Thoughts
So, here is our guide on how to buy hotel apartments in Dubai. Even though you can purchase a hotel apartment yourself, it can become quite complicated. Researching the best location, market conditions, hotel management fees, etc., requires a deep understanding of the real estate industry.
It is best to let a professional handle this for you for a minimal fee. An experienced real estate consultant/agency can make things easier and protect you from serious risks associated with such a considerable investment.
But all in all, buying a hotel apartment in Dubai is a lucrative investment that can yield great returns for many years.
Need help in renting, selling, or buying a property in Dubai? Feel free to contact Orchid Homes Real Estate Dubai—a licensed real estate broker firm.