What is yield in the property context?

Yield is an important concept in the property sector, especially for investors who want to check the success of their investment. It describes the relationship between the profit generated by a property and the associated costs. In Dubai, yields are a key factor that investors consider when selecting property.

Types of yield

There are different types of returns that are relevant in the property market:

• Gross yield: This simple calculation is often used to get a first impression of the profitability of a property. It is calculated by dividing the annual rental income by the purchase price of the property.
• Net yield: This yield takes into account additional costs such as maintenance, management and vacancies. The net yield provides a more realistic view of the actual profits realised.
• Return on investment: This refers to the increase in value of the property over a certain period of time. It complements the rental income and represents the total return.

Why is the yield important?

Yield is a key criterion for investors to make decisions. In a market like Dubai, where property prices are rising rapidly, an understanding of yields is essential. Higher yields indicate a more attractive investment and can attract potential buyers. Analysing yields helps investors make informed decisions and plan their finances better.

Calculating yields: an example

To calculate the yield, let’s use the following example:

Imagine you buy a flat in Dubai for AED 1,000,000. The annual rental income is AED 80,000. We calculate the gross yield as follows:

Gross yield = (Annual rental income / Purchase price) * 100 Gross yield = (80,000 / 1,000,000) * 100 = 8%

This yield of 8% could be considered attractive, but depends on the market situation and other factors.

Illustrative example on the topic: Yield

Let’s assume Max is a property investor who recently bought a flat in Dubai Marina. The purchase price was AED 1,200,000 and the monthly rental income is AED 10,000. In the first year, Max had an increase in rental income due to high demand, resulting in a total rental income of AED 120,000.

Max calculated his gross return as:

Gross Return = (120,000 / 1,200,000) * 100 = 10%

In this example, Max can see that his investment in a luxury property in a popular area of Dubai not only generates passive income, but also allows him to benefit from the increase in value. In the long term, he plans to sell the property after a few years at a higher price, which would further increase his overall return.

Conclusion

Yield is an essential aspect of property investment and shows the potential of a property as a source of income. By calculating and understanding the different yields, investors can make appropriate decisions and adjust their investment strategy effectively. If you are looking to enter the Dubai property market, you should always keep an eye on yields and all relevant factors.