A 7% guaranteed rent plus a mortgage: where the advertised 12% comes from, and what the model leaves out

"Guaranteed rent plus a mortgage" is turning up more and more often in Dubai commercial schemes. The pitch is a double-digit return on an asset that pays seven per cent. Here is the mechanism on real numbers — and then the part of it that tends not to be said out loud.

The arithmetic

Take an office unit at AED 2 552 000 on a 35/65 payment plan, with rent guaranteed by the developer at 7% a year.

• Your own money: 35% — AED 893 200.
• Mortgage: 65% — AED 1 658 800 at 4.2% a year.
• Guaranteed rent: 7% of the full price — AED 178 640 a year.
• Interest on the loan: 4.2% of AED 1 658 800 — AED 69 670 a year.
• Net income: 178 640 − 69 670 = AED 108 970 a year.
• Return on the cash invested: 108 970 ÷ 893 200 ≈ 12.2% a year.

Why the answer is bigger than seven

The whole effect sits in what each percentage is measured against. The guaranteed rent is calculated on the full price of the unit, while only 35% of that price is your money. The gap between what the asset yields (7%) and what the borrowed money costs (4.2%) accrues to whoever put up the equity.

That is ordinary financial leverage, and there is nothing dishonest about it. It also works in exactly one direction: it holds for as long as both of those two numbers stay where the model put them. Narrow the spread and the 12.2% falls faster than either input moved; reverse it and the loan is still being serviced out of a rent that no longer covers it.

Five things to check before signing

• The terms of the guarantee. Who is actually giving it — the developer or an operating company? For how many years? What happens the day it expires? And what stands behind it besides a signature?
• The terms of the loan. Is 4.2% fixed for the whole term or an introductory rate? Will a bank lend against a commercial unit at all, and on what conditions?
• The service charge. It is absent from the calculation above. In offices it runs at roughly AED 15–22 per square foot a year and takes a visible bite out of the income.
• VAT. Commercial rent in the UAE is subject to 5% VAT, and how it is handled is something to understand before the transaction rather than after it.
• Life after the guarantee. The decisive question is the real market rent for that location. If it sits below the guaranteed rate, then in two or three years the income drops to the market number while the mortgage carries on unchanged.

What to take from it

As a financial model the calculation is correct, and it is a clean illustration of how leverage works. But a model is not a promise. Every one of the five points above is answered by documents, and any single one of them can turn 12.2% into a materially smaller figure.

The calculation is built on terms advertised by the selling side for a specific commercial scheme in Dubai, July 2026.