Is Dubai’s short-term rental market hurting long-term property value?

Short-term rentals, fueled by platforms like Airbnb and Vrbo, are becoming more prevalent. The rapid rise in demand for such rentals has sparked a debate among property owners, investors, and policymakers. Based on a recent report by AirDXB, the short-term rental market in Dubai has experienced significant growth, with average daily rates increasing by 30 per cent year-over-year in the second quarter of 2024.

So could the short-term rental boom put the long-term value of Dubai’s property market at risk?

The rise of short-term rental properties in Dubai

The city’s favorable climate, luxurious amenities, and year-round tourism draw millions of visitors annually, providing a steady stream of demand for temporary accommodation. For property owners, offering a home on short-term rental platforms is an appealing way to capitalise on the influx of tourists.

Recent data from AirROI shows that the average yearly income for Airbnb hosts in Dubai exceeds $25,000, with the highest-performing units bringing in over $2,000 per month; approximately $300 a day.

Recognizing these lucrative trends, investors are increasingly entering the market to meet rising demand and capitalise on the substantial returns that short-term rentals can yield. In areas like Downtown Dubai, figures from TRPE Real Estate suggest that hosts can potentially achieve annual incomes within the Dhs80,000 to 300,000 range.

Impact on long-term property value

According to Airbtics, a short-term rental property in Dubai is typically booked for 255 nights per year, boasting an average occupancy rate of 70 per cent and an average daily rate of Dhs620. While these figures reflect strong market performance, they also highlight the sector’s vulnerability to external factors such as economic downturns and shifts in tourism trends. Frequent turnover in short-term rentals can disrupt community cohesion and contribute to security issues, and poor maintenance making areas less appealing to long-term residents.

The flexibility of converting properties from long-term rentals to short-term options introduces instability in the market, deterring long-term investors seeking stable returns. Short-term rentals have seen a dramatic increase in demand, especially in areas like Downtown Dubai, Dubai Marina, and Palm Jumeirah.

Blue Breeze reports that a holiday home in Dubai Marina can yield between Dhs 20,000 and 25,000 per month during peak seasons, while during off-peak periods, earnings typically range from Dhs2,000 to 15,000 per month. In contrast, the same property under traditional rental agreements would generate a consistent Dhs12,000 per month, with little room for rate increases due to rental regulations. This growing reliance on short-term rentals can contribute to stagnation in property values and increases the risk of devaluation during economic downturns.

Regulatory concerns and long-term outlook

Dubai’s government has been proactive in introducing regulations to govern short-term rental platforms, aiming to curb potential negative impacts. In 2021, the Dubai Department of Economy and Tourism (DET) mandated that all short-term rental operators obtain a holiday home license to legally rent properties on platforms like Airbnb and Vrbo. This process requires property owners to register their properties, submit necessary documents, and pay applicable fees. The license is valid for one year, and must be renewed annually.

According to the DET, owners are required to collect a tourism dirham fee of Dhs10-15 per room per night, depending on the property’s classification.

However, some critics argue that the regulations are not stringent enough to counteract the long-term risks. Recent data from the Global Property Guide reveals that residential rental prices in Dubai increased by 16.85 per cent year-over-year in November 2024. Villa rents saw a rise of 12.92 per cent, while apartment rents grew by 17.36 per cent.

The shift towards a “sharing economy” model in Dubai may inadvertently lead to a reduction in the overall housing supply, especially in areas where luxury properties are converted into short-term rentals. Short-term rentals can push up property prices and rents in the long run, putting pressure on local residents and businesses who depend on affordable long-term housing.

As Dubai’s property market evolves, the key challenge will be balancing short-term rental growth with long-term housing stability. The UAE’s unique regulatory approach could help mitigate these risks, but stricter enforcement may be required to avoid further market distortion. Integrating more affordable housing options and expanding long-term residential developments could help counterbalance the shift toward short-term rentals.

Thw writer is the executive director, TownX.