At this point, anyone familiar with financial history understands that mispricing is an inherent part of the system.
Generally speaking, markets are relatively efficient when pricing across asset classes. However, a lot of questionable commentary gets repeated, becoming embedded in investor thinking and increasingly difficult to challenge.
One such example is the overemphasis on rental yields. Brokers and analysts frequently promote rental yield rankings by market as a primary investment criterion. Yet, any real-world analysis reveals that the actual yields realized often fall short of projections.
Several predictable factors contribute to this discrepancy:
Maintenance issues arise, service charges tend to increase over time, and tenants often default on payments.
Vacancy periods also drag on, particularly during phases like the current one in Dubai, where properties remain unoccupied longer between tenants—this has a direct impact on investors’ actual net yields.
To complicate things further, some investors evaluate property income through a cash flow lens. When the property is financed through a mortgage, they may not perceive the returns as “passive income”—especially once they account for the ongoing management and upkeep involved.
Despite this, the outdated marketing line of “delivering one of the highest rental yields” continues to dominate. Yet, if you compare rental yields now to those during the early freehold boom, they’ve remained relatively constant—even though capital values have surged far more than rental rates have.
Interestingly, both a weak dollar today and a strong dollar previously are marketed as equally persuasive reasons to invest.
When questioned, brokers clarify they’re referring to gross yields. However, since the freehold boom, the gap between gross and net yields has widened significantly. This also helps explain why off-plan properties are more favored now, and why the premium on ready properties has grown—especially in a market still skewed toward investor interest.
There are smarter ways to assess these returns. When markets act irrationally—like during the post-pandemic surge that accelerated returns from an entire market cycle—assets inevitably become mispriced. That’s precisely the time when it makes sense to consider rental yields alongside replacement cost.
It often boils down to fundamentals. Just as in capital markets, where buying a stock trading at 110% of book value is more logical than buying one at 200%, similar reasoning applies in real estate.
Only when the asset is trading near or slightly above replacement cost does it make sense to analyze rental yields—especially since investors are aware that actual yields are usually lower than advertised.
Ironically, data shows the opposite trend: inflated asset prices often coincide with higher share buybacks and transaction activity. That said, the widening gap between ready and off-plan properties in some segments has led to profitable decisions for some investors—though this success typically has little to do with rental yields.
In a world of increasing volatility—where analysts refer to events as 3-, 4-, or even 5-sigma occurrences, as if Gaussian models could predict human behavior—ready properties may continue to offer value.
But ultimately, unless one is buying for personal use, capital should be allocated based on fundamentals—not based on the advertised rental yields sellers claim to offer.
