Why I Wouldn’t Start an Airbnb Arbitrage Business in Dubai Right Now

Dubai’s booming short-term rental market has attracted numerous entrepreneurs looking to capitalize on the opportunity. Airbnb arbitrage, also known as subleasing or rent-to-rent, is one such strategy where you lease a long-term rental property and then convert it into a short-term rental. The profit comes from the difference between what you pay the landlord and the earnings from Airbnb guests.

With Dubai’s fast-growing tourism industry, you might think that now is the perfect time to jump into Airbnb arbitrage. However, after closely monitoring the market and analyzing the economic landscape, I believe it’s not the ideal time to start an arbitrage business in Dubai. Here’s why:

Drastic Increase in Long-Term Rents

Dubai’s rental market has witnessed a significant surge in long-term rental prices over the past year. This rent increase has led to much higher upfront costs for securing properties, which poses a challenge for those looking to implement an Airbnb arbitrage strategy.

When long-term rental prices increase, it directly impacts your potential margins. To profit through arbitrage, you need to earn more from short-term guests than what you’re paying the landlord. With higher base rents, the difference between what you pay and what you earn is becoming slimmer, which could make it harder to generate significant profits.

Supply Outpacing Demand

While Dubai remains an attractive destination for tourists, the number of short-term rental properties available has surged in recent years. With the increasing number of Airbnb listings, supply is beginning to outpace demand, especially in certain city areas.

📊 According to AirDNA, active listing increased by 38% while demand increased by 9% in 2024.

 

This oversupply results in increased competition, which puts pressure on nightly rates. As more properties enter the market, it becomes more challenging to stand out and achieve the revenues that may have been possible in previous years. If you’re relying on arbitrage, it becomes difficult to secure bookings and maintain profitability when the market is oversaturated with options for guests.

Wrong Economic Incentives

A key challenge of the Airbnb arbitrage model is that it creates the wrong economic incentives for operators. As an arbitrager, every day that your property remains vacant is a loss. Because you’re paying rent on the property regardless of whether it’s booked, the pressure to fill your unit increases.

This often leads to a race to the bottom, where operators lower their prices to ensure bookings, even if that means sacrificing profitability. When too many operators adopt this approach, it leads to a saturated market where everyone is competing on price, which further drives down nightly rates. Over time, this erodes profit margins and makes the model unsustainable.

Alternative Strategies to Consider

If you’re still interested in entering Dubai’s short-term rental market, I recommend considering alternative strategies such as:

1. Property Management Model

Instead of arbitraging, you can explore managing properties for other owners. This approach offers more control over the property, stable cash flow, and better potential for growth without the risks of high upfront costs or excessive competition.

2. Purchasing a Unit

If you have the capital to invest, purchasing a property in a high-demand area could offer long-term stability and profitability. Owning the property outright means you have more control over pricing, guest experience, and property upkeep. Additionally, you can enjoy long-term appreciation and capital gains in the growing Dubai real estate market.

Conclusion

While Dubai’s short-term rental market continues to show growth, the landscape is becoming increasingly challenging for those relying on Airbnb arbitrage. The combination of rising long-term rents, oversupply of listings, and the wrong economic incentives makes it a less appealing strategy at this moment.

If you’re serious about entering the market, consider exploring alternative models that offer more stability, greater control, and potentially higher returns in the long run. By adapting to the evolving market conditions, you can create a more sustainable and profitable business.