The last years have marked a period of revival and recovery for Oman’s real estate sector following the global financial crisis. The country is now poised to consolidate progress and anchor economic growth. Real estate values have been rising across the board, while the number of transactions in the rental markets surged in 2013-14. Regional and local private sector players are investing heavily in development of modern retail spaces while large-scale government undertakings are helping develop industrial and commercial zones. The roll out of integrated tourism complexes (ITCs) has ushered in a new model of managing real estate that looks to attract a greater flow of revenue.
Several government initiatives have helped drive real estate growth. Improved access to home financing options, publicly backed affordable housing schemes and regulatory reform to reduce transaction costs in the market have helped expand the number of households in the local consumer base. At the same time, reforms in regulations governing foreign investment in the sector have been vital to attracting more financing. The expansion in the job market is also adding to the number of individuals and households looking to invest in housing. However, as demand rises and the real estate sector continues to expand, authorities are working to address challenges in order to ensure that the sector’s controlled and positive growth levels continue.
Urban planning is one such challenge for GCC countries, as the level of building activity puts a strain on the resources in place to manage the pace of change. There are concerns that reforms to strengthen the sector have been followed with regulatory requirements that unnecessarily burden developers and investors. “Regulations in the real estate sector are vital and should be focused on setting quality standards,” Benjamin Cullum, the general manager at Hamptons International & Partners, told OBG. “The best way to build local and international confidence is to focus the regulations on transparency at an industry-wide level." ECONOMIC ENVIRONMENT: Oman’s real estate market is inevitably linked with broader domestic economic trends, particularly with the hydrocarbons sector. However, while Oman will continue to depend on the hydrocarbons sector for the foreseeable future, there are positive signs that the national economy is diversifying. According to the World Bank’s World Development Indicators, Oman’s GDP grew by more than 5% in current US dollars in 2013. This marks four consecutive years of year-on-year growth of over 4.5%. Hydrocarbons still account for over 50% of national GDP, according to government data, but other sectors, including transport, telecoms and tourism, have shown strong growth in 2013-14 as well.
According to the National Centre for Statistics and Information (NCSI), wholesale and retail trade – the largest component of the services sector – grew by more than 4%, while real estate services grew by 5.9% over 2012-13. World Bank forecasts suggest that, while the pace of economic growth will slow down marginally over the next few years, the Omani economy will continue posting growth of over 4% annually.
Public sector expenditure remains high in Oman. The IMF predicts that Oman’s current account surplus will stand at 9.9% of GDP in 2013 before dropping to 4.7% in 2014 due to high public expenditures. Standard & Poor’s credit ratings for Oman indicate a strong economy, with an A/A-1 long- and short-term foreign and local currency sovereign credit rating. This rating is, however, dependent on a continued focus to diversify the economy moving forward. The stability afforded by this economic performance combined with a steady stream of large-scale public investments in infrastructure, construction and other activities has helped boost demand for Oman’s real estate sector. Infrastructure developments like airports, seaports and roads are creating more jobs and helping generate demand for residential and office space within the real estate market. In addition to a growing expatriate workforce, an increase in tourist arrivals is also supporting investments in real estate. Data from the UN World Tourism Organisation show tourism receipts reached OR419m ($1.08bn) in 2012.
Attracting Foreign Investment
One of the main interest points of Oman’s real estate markets in recent years has been the development of ITCs, which are demarcated zones that allow freehold ownership by foreign nationals and, in most cases, offer two-year visas for investors. These developments thus serve as a vehicle for increased foreign investment in the sector.
Oman’s ITC’s are generally mixed-use developments that cater to high-end clientele (see Tourism chapter). Construction at Saraya Bandar Jissah commenced in 2012 with Phase I expected to be completed in 2017. The $600m project is one of the newest ITC’s in Oman and will house 398 residential units across five zones over 2.2m sq metres of land when complete. The zones to be built in Phase I have been named Zaha, Nameer and Wajd, while Safa and Na’eem will be built under Phase II and projected to be completed in 2020. Sales for residential units in Zaha began in September 2014.
The Wave – Oman’s first ITC project – was launched in 2012. The $3.5bn development is a state-backed project that includes the eventual development of over 4000 residential units, luxury hotels, commercial space and a golf course, all developed on a 6-km stretch of waterfront real estate that features a 400-berth marina. The project is being developed as a joint venture between the publicly held Oman’s Waterfront Investments, the pension fund vehicle National Investment Development Company and Majid Al Futtaim Properties, a major Emirati property developer.
The developers have reported the release of more than 1000 residences to owners thus far. These include 85 apartments with completion of three buildings at Liwan in November 2013. Prices at Liwan start at OR89,000 ($230,450). Previously, 103 twin and detached villas were released at Reehan Gardens in the second quarter of 2012, with prices in the range of OR200,000-350,000 ($517,900-971,000). In late 2012 developers released 121 apartments in the OR80,000-375,000 ($207,150-906,500) price range at Marsa One and 40 apartments in the OR79,000-190,000 ($204,560-491,990) price range at Siraj.
The Wave was followed closely by the launch of Muscat Hills in 2013. The ITC is planned to include residential spaces built within a golf course development that also houses several luxury hotels. The residential section of Muscat Hills will have 80 villas and townhouses when complete. Prices for four-bedroom units will range from OR270,000-460,000 ($699,100-1.2m) while five- and six-bedroom units will be priced from OR465,000 ($1.2m) to OR900,000 ($2.33m).
The launch of ITCs marked a critical juncture in Oman’s real estate sector. The real estate vehicles have already acted as a catalyst for the sector, attracting significant flows of investment into the sultanate. However, regulations and laws governing ITCs need further streamlining for developments to reach their full potential. “The lack of formalised community management regulations and strata title laws are causing an element of concern amongst buyers in the ITC projects. Accountability, high fees, transparency and management of common service fees are commonly voiced concerns, according to some agents,” Christopher Steel, managing partner of Savills Oman, told OBG.
Demand for residential units has been robust in Oman in the course of 2013-14. While prices for residential leases fell for several years after the economic crisis, demand for housing has grown as the economy has recovered. Many real estate firms in Oman report that stand-alone villas are the most popular residential units, particularly with expatriates, with sustained demand forcing prices up over 2013-14. Cluttons, a global property consulting firm with a significant presence across the Middle East and North Africa region, reports that monthly rents for four-bedroom villas rose in the first quarter of 2014. According to the company, rents in the key neighbourhoods of Azaiba and Muscat Hills showed the most robust growth, rising by more than 9% and 6.3%, respectively, while rents for four-bedroom villas in other major luxury areas, including Shatti Al Qurum and The Wave, grew by 3%.
Prices for villas vary substantially. A four-bedroom house in neighbourhoods outside the city centre can lease for around OR500 ($1295) a month, according to Savill’s 2014 real estate report. At the other end of the spectrum, residents can expect to pay in the region of OR1800 ($4660) in up-market neighbourhoods like Shatti al Qurum and luxury developments like The Wave.
The upward trend of rental rates for high-end villas reflects strong demand. There is a shortage of housing in the OR1000-1800 ($2589-4661) range, particularly in neighbourhoods chosen by expatriates and wealthier nationals. Increased housing budgets for expatriates moving to Oman also explains the focus on high-end housing. Cluttons, however, notes that despite the recent increase in housing allocations, expatriate accommodation budgets are still below historic levels. “Affluent tenants as well as expatriates are still looking for luxury accommodation in communities with amenities like gymnasiums, gardens and swimming pools,” Philip Paul, head of Cluttons Oman, told OBG.
Two-bedroom apartments are also growing in popularity, particularly within single-tenant households. Sustained demand has helped push up prices for monthly rents by up to 12.5%, and a two-bedroom space in Shatti Al Qurum can cost up to OR800 ($2072) while a similar apartment would rent for around OR350 ($906) in neighbourhoods like Ruwi or Seeb.
There is a trend towards enquiries for shorter-term leases, most likely due to the nature of jobs and contracts created in the country. Expatriates coming to work on short-term projects are increasing demand for fully furnished residences, which will likely help ease some pressure on the limited supply of villas, but there is still a shortage of this type of accommodation. The supply of apartments outside ITCs has also risen and is expected to continue growing in 2015. Bausher, for example, is a central area in Muscat attracting a lot of residents. There are over 4000 residential apartments estimated in these areas, including developments at Telal al Qurum, the former Qaryat Qurum site as well as the new Taminat Complex in Bausher.
Cluttons also highlights a similar trend for demand for smaller apartments that still maintain a luxurious and modern environment. Gymnasiums, access to swimming pools and 24-hour security, for example, are attractive features for new tenants. Saud Bahwan Plaza in Ghubrah, for example, has a waiting list for its 423 residential units. A two-bedroom apartment at the Plaza currently rents for OR600-625 ($1554-1618) a month. Savills does note, however, that despite the new supply coming online, population growth in these areas will very easily soak up the additional residential units and will help keep rental rates relatively stable.
While ITCs have core characteristics that are attractive to foreign investors, “Omani nationals are actually the most active buyers in the developments,” said Paul. Residential units at Muscat Hills Phase II, in particular, are in great demand.
Cluttons reports that the average price in the development is an estimated OR1000 ($2590) per sq metre. Demand from Omani nationals is seen to come from buyers who did not invest in property around the period of the financial crisis and are now directing investments into the local property market. The increase in job creation and higher salaries are also helping to expand the potential consumer base.
“Attractive mortgage rates are also providing essential financial support for an estimated 80% of home-buyers,” Marianne Helme, the head of residential at Cluttons Oman, told OBG. “The remaining 20% represents cash purchases that are generally from Omani buyers. If current trends hold, it is likely that the supply of residential units will lag, which will in turn help support higher prices going forward.”
An expanding economy inevitably leads to booming commercial real estate. Oman’s real estate market for office space has seen a flurry of construction activity in the last several years, supported in part by public sector requirements and commercial activity spurred by government-backed infrastructure projects. Data from Savills’ 2014 report shows that there is an estimated 720,000 sq metres of office space graded as Class A or B space in Muscat. Some 34% of this space is Class A office space, which implies that it is located in prestigious buildings. Multi-national companies, construction and architectural firms that have been drawn to Oman’s growing economy are taking up most of this space.
Several real estate firms operating in Oman have indicated that there will be a shortage of Class A and B office space in Oman in the near future. Cluttons estimates that the demand for Grade A office space will touch 1m sq metres by 2018, but construction work on new space suggests the market will produce just 132,000 sq metres of space. In addition to serving as a deterrent to investors and companies, the lack of a controlled demand and supply equilibrium could create some short-term volatility in office space prices.
Small and medium-sized enterprises (SMEs) are another growing commercial segment with a strong appetite for office space. SMEs have shown a preference for serviced commercial spaces that save them the time and cost of fitting out offices. Cluttons reports this subsector requires some 50-150 sq metres of space.
In addition to office space, commercial retail is also a growing segment in Oman’s real estate sector. Global consultancy AT Kearney’s 2014 Global Retail Development Index report ranks Oman as the 17th-most-attractive destination for retail investment. Furthermore, the consumer base is concentrated in a relatively small number of urban markets, with the vast majority in Muscat. A GDP of over $72bn supports a stable consumer base of 3.6bn people, with incomes averaging $25,000 per person.
Developers have taken notice and have invested heavily in developing malls and other retail space to support this market. Muscat is estimated to have 350,000 sq metres of mall space, according to Cluttons, with 40% of this space concentrated in four malls. Muscat City Centre provides over 56,000 sq metres of leasable space in the capital and is anchored around a Carrefour hypermarket. The mall is set to add another 10,000 sq metres of space by 2015. Muscat Grand Mall opened in Muscat’s Al Khuwair neighbourhood in 2012 and has rapidly implemented an expansion plan that will eventually add almost 65,000 sq metres of retail space in the capital. A $138m expansion plan will add another 35,000 sq metres of space, housing an additional 100 retail outlets. Qurum City Centre, opened in 2008, and Markaz Al Bahja Mall each provide 20,000 sq metres of space. The Avenues and Panorama Mall, both currently under construction in Bausher, will be adding 100,000 sq meters to Muscat’s retail space within the next few years. Muscat Festival City Mall and the Mall of Oman, both still in the planning phase, would add another 200,000 sq meters in the capital.
Oman’s real estate market has demonstrated a resilience following the global financial turmoil, and is poised to continue growing as a stable economy and as government regulatory support continues feeding the sector. However, despite a positive outlook for the real estate market over the next few years, there are some challenges that can be addressed to help sustain growth in the sector. Policy and regulation, for example, are critical components that could support or deter further investments in the sector. Meanwhile, Cluttons and Savills both report that the number of four-and five-star hotels coming online over the next few years may serve to dampen prices in the market.
A major indicator pointing to the strength of the sector is the number of GCC nationals, who can direct property investments across the region, that are investing in Oman. Data from the Ministry of Housing shows that GCC nationals owned more than 3500 properties across Oman in 2013. Residential properties have also attracted significant investments from Omani nationals and from expatriates, particularly within the ITCs. Real estate transactions reached over OR2bn ($5.2bn) in 2013, representing growth of more than 34% over the previous year, according to data from the Ministry of Housing and Land Registry. These figures point to a very positive outlook for Oman’s real estate sector.
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