Can Dubai studios at AED 3,303,000 cash-flow with finance at 7.53%?

M

mara_rain

Landlord
I have modelled several completed Dubai studios priced around AED 3,303,000, and they all turn cash-flow negative once I include vacancy, management, maintenance reserves, insurance and finance at 7.53%. Tenant turnover makes the result worse.

Are buyers accepting weak current returns, using substantially more equity, or waiting for better pricing or borrowing terms? I would rather compare realistic operating assumptions—and actual completed examples near Dubai—than headline gross yields.
 
At a 7.53% financing cost, negative cash flow is not surprising unless the rent is unusually strong relative to the purchase price. More equity can make the monthly figure positive, but that does not automatically make the property a better investment. Some buyers may be prioritising appreciation or simply accepting a low current return.
 
What annual rent and loan-to-value are you using? Also, are management fees charged against collected rent or scheduled rent, and have you included building service charges separately from maintenance? Those details could move the result considerably. Vacancy should also include the gap between tenants, not just an assumed percentage while one tenant remains in place.
 
If the model smooths every cost into an annual percentage, it may seriously understate the cash needed during a tenant change. Vacancy, a leasing charge and between-tenancy repairs can all fall in the same month. On the other hand, assuming that worst combination every year can make a stable letting look weaker than it is.

I would keep two versions: an ordinary occupied year and a turnover year with the costs dated when they are likely to be paid. Then verify the leasing-fee basis and recent rent achieved in the exact completed building. That should show whether the problem is timing, the 7.53% finance cost or the AED 3,303,000 purchase price.
 
A useful next step is to calculate three break-even rents for each property: all-cash, your intended financing, and financing at a higher rate. Then compare those figures with supportable rent for that exact completed building, not a broad Dubai average. Keep any applicable property-related charges and acquisition costs visible rather than burying them in maintenance. If the required rent only works with perfect occupancy, the price is probably the issue—not the vacancy assumption.
 
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