Oman’s real estate market set to benefit from broader buyer base

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A move to relax the criteria that prospective homebuyers in Oman must meet to qualify for interest-free loans has provided low-income earners with an entry-point into the Sultanate’s real estate market.

In mid-November, the minister of housing, Sheikh Saif bin Mohammed al Shabibi, announced changes to the regulations governing its support scheme for low-earning families looking to buy residential property.

Under the revised regulations, the maximum credit limit will be raised from OR20,000 ($51,815) to OR30,000 ($77,722). Other changes include a new monthly income limit of OR301 ($780) for applicants, while the earnings ceiling now stands at OR500 ($1295) when registering for the loan, rising to OR600 ($1554) once funds are paid out. In a move that opens the door for older applicants to access credit, a rule requiring borrowers to be less than 60 years of age when the final repayment on a loan is due has been removed.

Previous efforts to make the scheme more accessible have already pushed up lending, with the value of loans granted in 2012 under the social housing programme jumping 363% year-on-year (y-o-y). Last year, the scheme provided assistance to almost 1400 families, who borrowed a total of OR26.8 ($69.4m), the Oman News Agency reported.

Prices on the rise

The easing of restrictions reflects a government drive to boost the number of homeowners, while also acknowledging the fact that property prices are on the rise, especially in the capital, Muscat. According to the Ministry of Housing, property prices climbed by 10-20% in the first half of the year, though the rate of increase varied across regions and cost brackets.

The ministry’s assessment was in line with a September report on the GCC real estate market from Kuwait-based Global Investment House (GIH), which noted a continued rise in demand for residential properties in Oman. The investment bank attributed the upward trend to improvements in macroeconomic conditions and consumer sentiment, as well as the decline in the cost of conventional mortgages and better access to sharia-compliant home loans.

Trends in the larger GCC market are likely having an impact. Dubai’s slowdown in 2008 and subsequent fall in property values helped put the brakes on in Oman – and the emirate’s revival over the past two years similarly stimulated a recovery in the Sultanate.

However, for now, any rise in activity seems relatively modest. A report issued by the Ministry of Housing’s land registry department indicated an increase of 2% in the value of property transactions for the January-to-September period, up to $3.78bn from $3.7bn on the same period last year.

Note of caution from central bank

While the figures give no reason to suggest Oman’s property market is at risk of overheating, the CBO will be watching borrowing trends closely.

In mid-November, the bank cautioned lenders against raising the ceiling limits and interest rates on both housing and personal loans given to public servants. The announcement came after a large number of state employees were awarded wage increases as part of a move to standardise pay grades within the public sector. Any breakaway from the set standards risked raising debt levels and could have an impact on inflation and the economy, the CBO said.

The government will be hoping that its decision to raise the ceiling for state-sponsored home loans sets the stage for a period of continued healthy growth in the housing market. The real estate sector, as a whole, is already outperforming the broader economy, expanding by 5.4% y-o-y in the first half of 2013, while GDP edged up a more modest 2%, according to government data issued in late November. A new level of support, built on solid foundations and offered under the watchful eye of the CBO, signals a positive outlook for the property market.

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