Dubai service charges: what remains of a 7.7% gross rental yield
Replace the advertised percentage with a bill-by-bill budget, then show how service charges and acquisition costs change the result.
An apartment bought for AED 1,000,000 and advertised at AED 77,000 annual rent has a 7.70% gross yield. That division contains no vacancy, service charges or private repair bill. It also assumes the advertised rent becomes collected rent.
Before comparing that percentage with another property or asset, reconstruct the building's costs. A service-charge bill can change the answer without changing either the purchase price or the rent. This guide uses hypothetical figures, not a current tower budget or a market-wide net return.
Find the approved bill for the right building
DLD's Service Charge Index lets an owner look up RERA-approved charges using project, usage and budget-year details, or title-deed information. Match the actual property and year. A neighbouring tower, an old advertisement or a rate for another usage is not the same budget. The public index says that its service charge excludes arrears, so obtain the account statement as well.
Check the chargeable area and units. A rate quoted per square foot must be multiplied by the applicable area in square feet, not a listing's square-metre figure. Keep the approved budget, its rate, the unit's invoice and the account balance together. The area-unit guide explains why a conversion error changes the bill materially.
The approved budget can already include common maintenance, utilities, building administration, insurance, master-community and reserve costs. Separate these from maintenance inside your unit and a letting agent's management charge. Under Article 41 of Dubai Law 6 of 2019, building-insurance premiums are included in service charges; charging the same insurance again in a yield worksheet would double-count it.
The worksheet: 7.7% becomes a different number
Our base case assumes 900 chargeable sqft at AED 15 per sqft per year. The charge, rent, vacancy and private costs below are author assumptions. They are not retrieved Mollak figures or quotations from a manager.
| Annual budget item | Amount | Assumption |
|---|---|---|
| Scheduled rent | AED 77,000 | Full-year contractual rent before vacancy |
| Vacancy allowance | AED 6,417 | One month without rent |
| Service charge | AED 13,500 | 900 chargeable sqft at AED 15 |
| Private repairs | AED 3,000 | Inside-unit costs outside the common budget |
| Letting management | AED 3,000 | Separate landlord-agent cost |
| Separate landlord insurance | AED 1,000 | Not the building policy already included |
| Retained rent before finance and tax | AED 50,083 | After these assumptions only |
Scheduled gross yield
7.70%
Annual rent divided by purchase price
After illustrated operating costs
5.01%
Retained rent divided by the same price; before finance and tax
The result is 5.01% on the purchase price. If we assume another AED 70,000 in purchase costs, the same retained rent is 4.68% of AED 1,070,000 total outlay. That acquisition-cost allowance is another assumption, not a universal fee percentage.
How sensitive is it to the service charge?
Keep rent, vacancy and private costs unchanged, and vary only the assumed charge rate.
| Assumed AED/sqft/year | Annual service charge | Retained rent | Yield on price | Yield on total assumed outlay |
|---|---|---|---|---|
| AED 10 | AED 9,000 | AED 54,583 | 5.46% | 5.10% |
| AED 15 | AED 13,500 | AED 50,083 | 5.01% | 4.68% |
| AED 20 | AED 18,000 | AED 45,583 | 4.56% | 4.26% |
This tests sensitivity; it does not identify which rate your building should have. Obtain the actual approved rate and calculate with the unit's actual chargeable area. If you start with rent already collected over the year, do not subtract the same vacancy loss again.
Who pays cooling and other charges?
Read the approved budget beside the lease and each separate invoice. Common-building utility expenditure is not necessarily the occupier's in-unit cooling account. Identify the account holder, fixed and usage components, contractual payer and anything already included elsewhere. A claim that cooling is “free” does not settle all of those questions.
Article 16 of Law 6 of 2019 places service-charge liability on the owner unless the lease provides otherwise, and the owner remains liable if the tenant defaults. Articles 27 and 28 address approval of the budget and payment of approved charges. A disagreement should be documented and taken through the appropriate process, not modelled as zero expenditure.
Keep the return definitions separate
This worksheet estimates retained operating rent before financing and tax. It is not cash-on-cash return, total investment return or a promise about resale value. With a mortgage, record debt service separately; principal repayment changes cash flow and the loan balance, rather than becoming the same kind of expense as a service charge. Major works, collection losses and sale costs can also change the result.