Investors snap up serviced apartments in Dubai hotel boom

It took Damac Properties just one day to sell the first 200 apartments in its Hollywood-themed apartment and hotel project as buyers seized the opportunity to invest in Dubai's booming tourism market.

Working with Viacom's Paramount Pictures, Damac plans to finance the US$1 billion, four-tower development in part with proceeds from advance sales of serviced apartments. Buyers of serviced apartments can rent them out through a central reservation system, with annual yields that can exceed those from conventional apartments.

"Rents can reach double what you'll normally get on a long-term lease," said Ronald Hinchey, United Arab Emirates director at Cluttons, a property management and consulting firm. "It's a very good investment, simply because hotel occupancy and rates are very high at the moment."

The depth of demand for serviced apartments - and their viability as a financing source for developers at a time when construction loans are hard to get - will be tested as Damac and Emaar Properties, the country's biggest developer, seek to sell at least 2,400 apartments over the coming months.

Until now, individual investors have been largely excluded from Dubai's hospitality market, where most rooms and serviced apartments are owned by private funds and hotel operators. An increase in tourism and shopping from 2010 sparked a surge in accommodation.

It remains to be seen whether tourism will be strong enough to sustain the surge in Dubai's hotel development. At least 11,200 rooms are expected to be added in Dubai by 2015 as hotels such as Sofitel Palm Jumeirah, Anantara Royal Amwaj and Oberoi Business Bay are completed, broker Jones Lang LaSalle said in a report last month. The UAE is still recovering from a speculation-driven real estate crash that caused property values to fall more than 65 per cent.