Interview: Sheikh Salim bin Ahmed Al Ghazali
How do global oil prices affect demand for residential and commercial property?
SHEIKH SALIM BIN AHMED AL GHAZALI: There is undoubtedly a relationship between the petroleum market and demand for properties in both segments, due to the fact that Oman’s economy is more than 85% dependent on oil and gas revenue, and that the 2018 budget was prepared on the basis of hydrocarbon prices. Every domestic sector, not only real estate, is highly dependent on global trading prices. The increases of 2018 will help the government to settle its outstanding dues, which are owed in large part to private sector contractors. This in turn will supply additional funds to the economy and create opportunities for the private sector to invest in new projects, and that spending is expected to have a knock-on effect within the real estate sector. In addition, an uptick of new developments across the economy will help to attract manpower to the sultanate.
In what ways have new trends in conventional villas, apartments and smart homes affected the sector, and what does this mean for developers?
SHEIKH SALIM: The level of income for both employees and investors will continue to drive demand for either conventional villas or apartments. The developers must conduct feasibility studies before they undertake any real estate projects, either in Oman or across the region as a whole. In times of economic uncertainty, such as periods when the price of oil is down, developers should be more conservative in their investment decision-making. This is especially the case in the real estate market, as it is very sensitive and depends largely on the movement of expatriates. We have recognised that many locals who own villas are beginning to shift towards luxury apartments and renting their villa to others. The demand for those villas is growing and is less affected than other real estate variants.
In what ways have real estate investment trusts (REITs) altered investment appeal and funding options for developers?
SHEIKH SALIM: The REIT system is one of the many funding options that have been made available by the government to smaller investors. This source of finance, which was created in 2018, has given opportunities to these investors to participate in large real estate development projects that can generate regular and substantial revenue for them, and it has become a good business opportunity for those who want to make both small and large investments in property. We feel that the creation of the REIT system is one of the positive actions taken by the government. It is beneficial for the investors as it provides a means by which they can invest in various projects to generate or multiply their incomes, rather than merely saving it in a bank and earning low interest rates.
How can developers mitigate domestic oversupply in the residential and commercial segments?
SHEIKH SALIM: We agree that there is an oversupply of properties in both areas, but in our opinion and based on our experience, there is still sufficient demand for luxury residential and commercial products at feasible prices. The costs for luxury office space in commercial areas should be reasonable, ranging from OR4-8 ($10.39-20.78) per sq metre. High prices will negatively affect any investor who wants to become involved in commercial sectors, as rent is a very important factor when it comes to deciding whether to commit capital or not. Therefore, we would advise developers to look into and then revise their desired internal rates of return (IRR) before they invest. They have to reduce their IRR from 12% to a minimum of 8 % or 9%, and if they do so, this will reduce the price of the rentable areas and help to attract investors to the market again.
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