Service charges — the number that decides every yield calculation
Purchase price and rent appear in every listing. The line item that decides your actual return rarely does — and it varies several-fold between comparable properties.
Anyone buying an apartment in Dubai is given two numbers: the purchase price and the achievable rent. From those a gross yield can be calculated, and as a rule it sounds good.
Unfortunately it is not the number your money earns.
What service charges are
Service charges are the annual running costs of a building, apportioned among the owners. They cover maintenance, cleaning, security, insurance, management and the operation of shared facilities — pool, gym, lobby, landscaping.
They are calculated per unit of area and approved annually by the regulator. Unlike in Germany, they cannot be passed on to the tenant: the owner bears them.
Why the range is so wide
Two apartments of the same size, in neighbouring towers, at almost identical rents — and yet completely different net yields. The difference almost always sits here.
The drivers are:
- The level of shared amenities. A heated infinity pool on the roof, a round-the-clock concierge and a cinema room cost money every year. Always.
- Age and build quality. Buildings with defects from the construction phase consume more maintenance permanently.
- Size of the development. Costs spread differently across a tower of four hundred units than across a development of sixty.
- Quality of management. That varies considerably too.
How to check it
Ask three things before you buy:
- The approved rate for the current year — per square foot, in writing.
- The trend over the last three years. A rate that rises sharply every year will carry on doing so.
- Whether reserves have been built up. If they have not, the next major repair arrives as a special levy.
Almost nobody asks the third question. It is the most important one.
What follows from this
Never calculate with the gross yield. Deduct service charges, management costs, a realistic vacancy rate and a reserve for maintenance inside the apartment itself.
What remains is the number worth talking about. It is regularly and noticeably below what was quoted in the sales conversation — and that is precisely why it was not quoted.
Keep checking
If you want to apply this to a specific plan, I am happy to assess it with you, or you can work through the twelve points before a purchase yourself.
