Payback period: why Dubai’s low ranking is good news
International tables measure how many years of rent it takes to repay a home’s price. Dubai is regularly at the bottom — and that is the right place to be.
There are international rankings that measure a simple thing: how many years of rental income it takes to repay the price of an apartment. Dubai regularly ends up at the bottom of those tables — and that is good news, however it looks.
How it is calculated
The formula is elementary: price divided by annual rental income, and the answer is the number of years to payback. The more years, the worse for an investor.
Converting years into the familiar percentages is just as simple — 100 divided by the payback period:
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- 16 years = 6.25% a year
- 20 years = 5%
- 33 years, typical for expensive European capitals, = about 3%
The cities at the top of such a ranking are the cities with the longest payback — that is, the lowest rental yield. Dubai sits in the basement precisely because an apartment here repays itself faster.
Why it is shorter in Dubai
A combination of two things: prices that are moderate by world standards for a city of this level, and strong rental demand against a housing shortage. Plus the absence of income and ownership taxes, which in other jurisdictions cut the yield before anything else is deducted at all.
What the measure ignores
- Costs. Service charge, management, voids and repairs. Calculate on net income or the payback will be several years longer than stated.
- Capital growth. The ranking measures cash flow only and ignores appreciation — which on a rising market is often the larger part of the return.
- Liquidity. Fast payback on an illiquid market is a doubtful advantage: being able to exit matters more than repaying on paper.
Video on this topic
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