A yield is quoted to you. It sounds good. Twelve months later the money that actually reached your account implies something noticeably lower. Nobody misled you — you were given a gross figure and experienced a net one.
The two numbers, plainly
Gross yield is annual rent divided by purchase price. It ignores every cost of owning the property. It is the number in the advertisement because it is the largest defensible number available.
Net yield is what remains after the property has been run for a year. It is the number that determines whether the investment worked.
Getting from one to the other
Subtract, in this order:
- Service charges — per square foot per year, payable whether or not the unit is let. Usually the largest single deduction. See our guide to service charges in Dubai.
- Property management, if you are not managing it yourself.
- Maintenance and repairs — budget for it annually rather than treating it as an exception.
- Vacancy — the weeks between tenancies. This is the deduction most often set to zero in projections, and it is almost never zero.
- Financing costs, if you borrowed.
An illustration of the arithmetic
The figures below are round numbers chosen to show the mechanics. They are not market data and should not be read as a forecast for any building or district.
Suppose a property costs 1,000,000 and rents for 70,000 a year. Gross yield is 7%. Now run it for a year: service charges take 12,000, management takes 3,500, maintenance takes 3,000, and one month of vacancy between tenants costs 5,800. Total deductions 24,300. Net income 45,700, or 4.57%.
The headline said 7%. The property paid 4.57%. Neither number is dishonest — they measure different things. The gap in this illustration is about a third of the return, and a third is roughly the order of magnitude to expect before financing.
Why this changes which property you should buy
Once you work in net terms, the ranking of properties often reverses. A building with a slightly lower gross yield, low service charges, strong management and consistent occupancy can comfortably out-earn one with a headline yield a full point higher and a service charge to match.
That is the practical value of the calculation. It is not pessimism — it is the only version of the number you can actually spend.
What to ask any adviser
- Is that figure gross or net?
- What service charge did you assume, and for which building?
- What vacancy allowance is in it?
- Can you show me the arithmetic?
Anyone advising on Dubai investment property should be able to walk through that calculation with you rather than quoting a percentage. If they cannot, the percentage is decoration.
Rental performance also varies by district. Our area guides cover which communities attract consistent tenant demand, and we will run the net calculation on any specific unit you are weighing up — just ask.
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