Gross yield, net yield and the costs Dubai landlords forget

Gross yield is annual rent divided by purchase price. That is the whole calculation. An apartment let at AED 105,000 a year against a price of AED 1,500,000 shows 7%, and that figure is what appears in listings and in the first spreadsheet a buyer builds. It measures the asking price against the asking rent. It does not measure income.

Net yield takes the same rent, removes the costs that stay with the owner whatever the tenancy says, and divides by the capital actually deployed rather than the headline price. Two changes, and the number moves a long way. The deductions are not obscure. Most of them are published by the Dubai Land Department or fixed by Dubai law, which makes leaving them out a choice rather than an oversight.

Where gross yield stops

Gross yield is still worth calculating. It compares two buildings before the running costs are known, which is the right screen at the top of a search. The failure is treating it as income. A 7% gross on a service-charge-heavy tower and a 7% gross on a villa with a low community charge are different investments.

Work in this order. Gross yield as a screen. Then the deduction list, building by building. Then the yield on everything paid to acquire the property.

Service charge is the owner's debt

Under Law No. (6) of 2019 concerning ownership of jointly owned real property in Dubai, service charges are the annual charges collected from owners to cover the management, operation, maintenance and repair of the jointly owned property. Usage charges cover common facilities. Article 16(b) is the part that matters for a yield model.

A lease can move the cash payment to a tenant. It cannot move the liability. The Land Department says the same thing in plainer words in its own guidance, that the landlord is responsible for paying service fees relating to a property, and it has published the Rental Disputes Centre's warning that arrears can end in the unit being sold to settle them.

The approved rate is not a matter of opinion. RERA approves the budget for each jointly owned property, and under Article 27 it may not approve or ratify a service charge or usage charge budget unless a certified audit firm recognised by RERA has approved it. The approved figures sit in the Mollak service charge index, searchable by master community, project, usage and budget year. Pull the entry for the building and two budget years before the number goes into a model.

Cooling, and why rates do not compare

Two buildings can carry the same rate per square foot and produce different net yields, because what the charge buys differs. Where cooling is not individually metered, the cost sits inside the service charge and the owner carries it. Where it is metered, it sits on the occupier's account and the headline rate looks lower. Land Department guidance notes that tenants may contribute to air conditioning costs where units are not separately metered. Read the budget lines, not the total.

Management, letting and the renewal fee

A management fee is a percentage of rent collected, agreed in the management contract between owner and company. Dubai registers that contract. The Land Department's service for registering or renewing a real estate management contract runs through the Ejari system and is listed as free, so registration costs nothing while the percentage inside the contract is whatever was negotiated.

The letting fee is separate, and the renewal is where models break. It sits in the lease brokerage agreement between owner and broker. Read the renewal clause before signing. A model that charges a letting fee once, in year one, is wrong if the agreement charges again every time the same tenant signs another year.

Ejari registration is small but real. Registering or renewing a tenancy contract through the Dubai REST app or the Land Department website costs AED 100 for the registration, AED 10 knowledge fee, AED 10 innovation fee, and a service partner fee of AED 55 with AED 2.75 of VAT on it. That is AED 177.75. Through a Real Estate Services Trustee centre the same registration comes to AED 220.

Vacancy has a legal minimum length

Vacancy is the deduction that gets rounded to zero. Dubai law makes that harder to justify, because the calendar is not entirely the owner's to set. Under Article 14 of Law No. (26) of 2007, as amended by Law No. (33) of 2008, a party wanting to amend any term of a lease on renewal, rent included, must notify the other at least 90 days before the contract expires. Miss the window and the year runs on the old terms.

Where the owner wants the unit back after the term, Article 25(2) requires the landlord to notify the tenant of the eviction reasons at least 12 months before the date of eviction, served through a Notary Public or by registered mail. That is a long lead. Any model that assumes a unit can be emptied and re-let at a new rent within a quarter is describing a different city.

Rent on renewal is capped as well. Decree No. (43) of 2013, issued in Dubai on 18 December 2013 and in force from the day of issue, sets the maximum increase by reference to how far the current rent sits below the average rental value of similar units in the rent index approved by RERA.

The decree binds landlords in Dubai including special development zones and free zones, the Dubai International Financial Centre among them. The Land Department describes the rent index as indicative for a new lease and binding when the contracting parties are in conflict. During a void the electricity and water account returns to the owner. Take that figure from the unit's last bill rather than an estimate.

The 5% housing fee is not the landlord's deduction

Dubai levies a housing fee of 5% of annual rent, collected in instalments with the monthly electricity and water bill. It belongs to the occupier. Article 22 of Law No. (26) of 2007 puts fees due to government entities for use of the property on the tenant, and the UAE Government's platform states that tenants pay the Dubai Municipality housing fee at 5% of the yearly rental charge. It does not come out of the landlord's rent. Putting it into a net yield model understates the return.

It still matters. The fee is part of what an occupier pays to live there, so it shapes what the asking rent can bear.

A worked example

The figures below are assumptions chosen to show the arithmetic. Only the Ejari registration amount is a published fee. Substitute the building's own Mollak rate, the agreed management percentage and the unit's actual void history.

Yield on capital deployed

The denominator is wrong in most models. Purchase price is not what left the account. The Land Department publishes the sale registration fee as 2% of the sale value from the seller and 2% from the buyer, plus AED 250 for the title deed certificate, AED 10 knowledge fee and AED 10 innovation fee. A service partner fee of AED 4,000 plus VAT applies where the sale value is AED 500,000 or more, and AED 2,000 plus VAT below that. Which side pays which half of the 4% is a matter for the sale contract, not for the fee schedule.

On the example above, the buyer's 2% is AED 30,000, the three fixed items come to AED 270, and the service partner fee with VAT is AED 4,200. Capital deployed is AED 1,534,470. The same AED 73,422 of net income is 4.78% against that. Not 4.89%, and not 7%.

Adding a mortgage changes the arithmetic again. The denominator becomes equity, and finance costs join the deductions. That is a separate calculation.

VAT the residential landlord cannot reclaim

Supplies of residential property in the UAE are generally exempt from VAT, while sales and leases of commercial property are taxable at the standard rate of 5%. The Ministry of Finance also states that where an expense relates to an exempt supply, the registered person may not recover the input tax paid. For a residential landlord, VAT on service charge and contractor invoices is a cost rather than a timing difference. Model those amounts gross.

Before making an offer, pull three documents: the Mollak service charge entry for the building across two budget years, the current Ejari contract with its expiry date, and the last utility bill for the unit. Re-run the net figure on those. If the answer still matches the listing's gross yield, something has been left out.