Dubai: Some of Dubai’s developers are using unsold inventory, especially serviced hotel apartments, to muscle their way into the holiday home space, according to market sources. This puts licensed holiday home operators at a terrible disadvantage, they add.
“If a developer rents out a hotel apartment, they need to pay a 20 per cent tax on the room rate,” said Vinayak Mahtani, CEO at bnbme, which specialises in short-stay or holiday lets. “But if the same property is “reclassified” by the developer as a holiday home. they need to pay the tourism dirham, typically between Dh10-Dh20 a night.
“At the same time, they still can derive all the benefits of that property being branded as a “hotel” property. Clearly, there’s a loophole in how holiday homes are licensed and some developers are exploiting it.”
Why would developers want to get into holiday homes all of a sudden? It is over the last 12-18 months that holiday homes have shot into such prominence in Dubai, with the Palm, Downtown and Dubai Marina as the top choices for visitors, irrespective of whether they were here for business or leisure. Led by Airbnb’s entry and the launch of Dubai-based holiday home management companies, this category has been the standout performer within the wider real estate sector. In the initial phase, most of the properties that were being leased belonged to individual landlords or investors.
But now, developers are seeing the potential and wanting to get in on their own — and they have the ready units to make it happen.
“Depending on the location and time of year, these leases offer developers an uplift in terms of yield,” said Sameer Lakhani, Managing Director at Global Capital Partners. “Buildings that were zoned for hotel apartments have an obvious incentive to convert to short-term lets, as the former attracts a tax whereas the latter does not — at present.”
This is what’s especially galling for holiday home management companies, who typically lease out the units on behalf of a landlord. They operate on a commission basis, much like what happens in long-term residential unit leasing.
But when developers are directly offering a unit as lease, they have the heft to exclude the holiday home operator. (And if they are so minded, even cut their lease rates to make lives even more difficult for the competition.)
Regulate the licensing
This is why Mahtani reckons there is now a need for the authorities — DTCM (Department of Tourism and Commerce Marketing) does it for holiday home licensing — to tighten up the process.
“A developer with a title deed for a hotel apartment should not be allowed on the vacation rental market,” he added. “As an industry, it should be clear to all that we are not hotel apartments and we are not hotel operators. We are very clearly in the business of holiday homes or vacation rentals.
“The DTCM should ensure developers with hotel apartments should remain as such.”
In recent weeks, the relationship between developers and holiday home businesses have frayed over multiple incidents. There was the move by Emaar to stop all holiday home leasing activities at its Downtown development; but it was met by a universal push back from such operators and the developer subsequently dropped the plans.
But industry sources say this is not an isolated incident, and remain in hope that the DTCM will at some point come out with clear cut regulations. For an industry in its nascent phase of developments, Dubai’s holiday homes could do with some clarification.
Owner associations could emerge as a factor
Will owner associations get to have a say whether landlords can let out holiday home stays in their buildings? As of now, OAs do not … and the issue has been tested out before the DTCM, which has ruled in favour of the landlords. But market sources reckon that some clear guidelines might emerge on this score.
“We have seen similar decision-making processes in cities such as New York and London, where certain buildings have had their landlords vote against the option of allowing short-term tenants,” said Sameer Lakhani of GCP, which operates such units at some of its properties. “In Dubai, what will likely to happen is that the ability to convert to short-term lets will be easier in tourist “hotspots” as opposed to suburban communities where longer tenant duration is preferred.”
An industry grouping
There will soon be an industry grouping for holiday home operators in Dubai.
“We are in the process of setting up — and only qualified property managers will be its members,” said Vinayak Mahtani of bnbme. “We will encourage home owners to assess the companies they work with rather than just going for deals that seem extra lucrative. They need to think hard about those companies that promise the world … or charge next to nothing.”