For Dubai residents seeking to transform their property into a profitable investment venture, the decision between short or long-term rental options is crucial. However, determining which choice ensures superior returns involves considering various factors.

The real estate sector in the emirate is presently undergoing a remarkable year across nearly all market segments. This upswing is primarily fueled by an increase in high-net-worth individuals and rising rental costs, prompting residents to shift towards property ownership instead of renting.

"Investors navigating the real estate terrain are faced with a pivotal choice – opting for a strategy that aligns with their unique risk tolerance and financial goals," stated Sofkul Islam, Managing Director at Victorstone.

The enticement of higher returns linked to short-term rentals may be alluring for investors, but several factors must be taken into account that could potentially influence ROI.

"Short-term rentals introduce a distinctive element of uncertainty," highlighted Sofkul Islam, referring to highly variable occupancy and nightly rates that hinge on the fluctuating market demand levels.

However, the paramount factor influencing the demand for short-term lets is location.

"Properties in prime areas like Downtown, Palm Jumeirah, and other key locations often yield better ROI than long-term rentals. Nevertheless, even secondary locations such as JVC and Uptown Motor City are gaining popularity for short-term rentals, indicating potential for favourable returns," added Tahera Zaman, International Investment Consultant for New Build and Off-Plan properties at Victorstone.

Apartments or studios are perfect for solo travellers or couples seeking a convenient and cost-effective holiday home, while villas and townhouses provide a more suitable option for larger groups or families desiring a more spacious and private experience. The most sought-after short-term rentals are typically situated in city centres, coastal areas, or entertainment districts.

"Waterfront neighbourhoods like Dubai Marina and JBR are highly conducive to short-term rentals, thanks to their breathtaking views, excellent amenities, and proximity to the beach," explained Fokrul Islam, Managing Director at Victorstone.

"Downtown Dubai and Business Bay are immensely popular among residents and visitors alike due to their closeness to businesses, transportation links, and iconic landmarks like the Burj Khalifa and Dubai Mall."

According to data, there are currently over 26,000 apartments available for short-term rentals in Dubai, with one to two-bedroom premium properties being the most favoured, boasting a remarkable 30% ROI compared to long-term rentals.

However, for your investment property to serve as a successful holiday home, it must feature stylish furnishings and excellent amenities, including Wi-Fi, a swimming pool, and a gym.

"Short-term rentals offer more flexibility in terms of the property being available for personal use, but also introduce more potential points of friction due to the consistent transactional nature of the short-term market, a higher risk of void periods, and the fact that the properties are almost always offered furnished, including soft furnishings," highlighted Fokrul Islam.

These properties frequently incur elevated operational expenses due to routine cleaning, restocking amenities, and the provision of additional services. They also necessitate more proactive marketing and management endeavours to ensure a consistent influx of guests.

Following the legalisation of short-term rentals in Dubai, there has been a simultaneous increase in both supply and demand.

"Booking through units like these offers guests flexibility, comfort, and competitive rates compared to hotels. Moving forward, it is expected that the demand and supply for short-term rentals will continue to expand in the coming years, aligning with Dubai's development plans," he further stated.

Traditional long-term rentals are a suitable option for property owners with a lower risk appetite seeking a more stable income stream from their investment, according to experts. However, there are drawbacks, with the most significant being that a higher return on investment is not always guaranteed.

"Long-term rental agreements provide greater visibility into the potential income generated from leasing a property in Dubai. This gives landlords a clearer understanding of their annual income," stated Fokrul Islam. He added that the expenses associated with this rental agreement type are limited to the property's maintenance fees, which are less labour and capital-intensive compared to short-term rentals.

However, unlike short-term rentals, prices cannot be adjusted based on market demand if a long-term tenancy contract is already in effect.

"The decision on returns ultimately hinges on your priorities. If you value comfort and convenience without the hassle of frequent maintenance or tenant search, the long-term option is optimal. It ensures a steady return on investment with consistent yields," remarked Fokrul Islam.

Investors aligning more with this rental model should contemplate purchasing their investment properties in residential neighbourhoods, considering factors such as proximity to good schools, healthcare facilities, family-friendly amenities, and accessibility to business hubs for convenient commuting by professionals. Additionally, aspects like green spaces, play areas, parking facilities, and security features should be taken into account, emphasised Fokrul.

While longer-term rental prices remain elevated, Sofkul Islam suggests that landlords should base their decisions between the two options on personal circumstances, their objectives, and how actively they wish to be involved, rather than solely focusing on financial considerations.

"After considering all the factors, the ROI between them can end up being very marginal," he emphasised.

However, for those seeking quicker returns, unaffected by rental freezes and willing to manage frequent tenant changes and adapt to evolving market conditions, short-term rentals may be a more suitable option, especially considering recent data indicating "spikes in gains over short-term stays," according to Sofkul.

"In the end, the decision between short-term and traditional rentals is a nuanced one, contingent on an investor's risk tolerance and specific financial objectives. Whether prioritising the potential for attractive returns or seeking the stability of a traditional rental model, investors must meticulously evaluate their preferences and goals to formulate a strategy aligned with their unique circumstances in the ever-evolving landscape of real estate investment," stated Fokrul Islam.

Tahera Zaman believes that the potential for a high ROI is contingent on the property itself.

"Not all units can achieve a significant ROI. It heavily depends on factors such as location, the quality of the building, how well the property is furnished, and having the right pricing strategy," she noted.

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