While Oman’s property market remained relatively slow in 2011, the sector is showing signs of steady growth. Factors influencing the favourable trend include improved financing for housing as well as general economic growth across the sultanate. Widespread salary increases in 2011 were greatly considered an additional element behind the strengthened market conditions. After experiencing considerable growth in 2005, real estate in Oman took a hit three years later due to the global credit crunch. Yet the country was able to avoid the dramatic downturns seen in other GCC markets largely due to a slower pace of building. More importantly, however, the country’s real estate industry appears to have quickly recovered. In fact, property prices in Oman are now reported to be roughly three times what they were before the global slowdown.
Demographics
Most property in the sultanate is sold to Omanis, in contrast to some GCC countries. Slightly over 70% of the country’s 2.8m residents are Omani, according to the results of the 2010 census published by the Ministry of National Economy. As a result, real estate developers in Oman target a local demographic rather than catering to expatriate buyers. Notably, about 60% of Omani residents in 2010 were under the age of 21, according to the ministry, which means demand for housing should increase tremendously in the coming years. Developers able to supply affordable homes should have an edge over the competition.
The Market
An average of around 3100 apartments and 2200 villas were built each year in Muscat in 2003-10, according to Al Habib, a local real estate service firm. While construction has remained relatively constant over the eight-year period, this represents a significant increase since the 1990s and early 2000s when around 1500 apartments and 1500 villas were built in Oman’s capital each year. Following recent socio-economic reforms Hayyan Ali Al Lawati, the managing director of Al Habib, told OBG, “With increased salaries, disposable incomes also grow, and this should have a positive effect on demand for goods and services.”
According to the most recent figures provided by the Ministry of Commerce and Industry, the real estate services sector accounted for an estimated OR294.4m ($767.2m), or almost 4%, of the sultanate’s OR73.71bn ($192.1bn) total GDP during the first quarter of 2012.
This represents a rise of nearly 8.5% when compared to the first quarter of 2011. The Ministry of Commerce and Industry reported that the real estate services sector contributed OR271.6m ($707.8m) to the nation’s total GDP during the first three months of 2011.
Housing Market
Residential real estate remains the most important segment of Oman’s property market. According to Cluttons, a property consultancy, around 75% of the market is interested in two- and three-bedroom flats. Cluttons calculates that while demand for larger apartments is negligible, demand for fully furnished flats and one-bedroom apartments has increased noticeably in recent years. Clutton’s head of Oman, Philip Paul, told OBG, “Oman is fortunate in that it is not short on land. This is great news for planning purposes, but it needs to be done strategically.”
In the past, the country’s rental market predominantly focused on expatriates. However, Omanis are increasingly choosing to rent residential property. This is happening in part because greater numbers of young Omanis are moving to the country’s cities where there are better and higher-paying jobs available. Indeed, students and recent graduates have become a large segment of Muscat’s population. Many of these students and new hires rent apartments while they wait until they can afford to buy a house or villa.
Although rental values in Oman have become relatively steady over the past two years, some well-designed properties in desirable locations are rising in value. For example, the Al Tilal Complex, a recently completed residential development in the coastal district of Al Khuwair, includes 180 residential units and 110 serviced flats. Rental values per month at Al Tilal run from OR500-600 ($1303-1563) for a one-bedroom, OR700-900 ($1824-2345) for a two-bedroom and range from OR1000-1200 ($2606-3127) for a three-bedroom apartment, according to Cluttons. These figures are well above average rental values in Al Khuwair. The Al Tilal Complex provides tenants with high-quality living space in addition to a range of facilities. Demand for this type of housing is growing, and there is currently a shortage of such space. While some of this demand comes from expatriates, Omanis have increasingly higher standards for housing as well.
Attracting Expatriates
Some of the better built and finished property available in the sultanate is part of integrated tourism complexes (ITCs). These multi-use developments are typically centred on leisure facilities such as a golf course, and offer the only property non-GCC nationals may buy on a freehold basis. Many of these projects were developed with the aim of attracting Western expatriate buyers and investors.
ITCs faced some challenges as a consequence of the economic downturn in 2008, and several projects were put on hold. However, after adjusting to altered conditions, the ITC segment has improved significantly. As of September 2012 a number of ITC developments in Oman had handed over property, including Muscat Hills, The Wave, Jebel Sifah and Salalah Beach. Most of the buyers and renters of ITC property live and work in Oman, and many commute everyday to Muscat. Relatively few investors purchase ITC property for holiday purposes. As the real estate market has become more price sensitive since the global credit crunch, many ITC developers have shifted to meet market needs by downsizing properties.
New Wave
Muscat’s first major ITC, The Wave, began with the signing of a shareholder deal in 2005. Following a development agreement with the government in 2006, construction began in April 2007. The 102-unit Reehan Garden phase is currently being sold, and around 50% of these properties have been purchased. Another 250 units are under construction. A total of 4200 residential units will eventually be handed over and sold, and in September 2012 950 units, housing roughly 2500 residents, were completed and handed over.
Around 50% of the property owners at The Wave are Omani, and the remaining half are foreign nationals. A large number of these expatriate owners have been living in Oman for many years and want to settle down permanently. A smaller category of foreign owners have lived in Oman in the past and purchased property at The Wave to use as a holiday home. The developer reported that rental rates for a two-bedroom flat at The Wave have reached OR1000 ($2606) per month.
While ITCs provide high-quality residential units and make freehold property available to non-GCC nationals, the developments also contribute to Oman’s nascent tourism sector. The Wave Muscat’s CEO, Michael Lenarduzzi, told OBG, “To differentiate Oman’s tourism offering we must move away from the obvious natural physical beauty of Oman to the traveller’s experience of it. Exposing the relatively untapped cultural aspect of Oman would be very beneficial.” Many ITCs plan to build tourism infrastructure such as hotels and marinas. In late 2011 Jebel Sifah announced the soft launch of a new, 100-berth marina, and the beach marina at Salalah Beach has almost been completed.
The Wave plans to construct a marina with around 400 berths, and announced in August 2012 that 120 berths were now operational. Other tourism-related infrastructure at The Wave includes retail shops and a golf course. Seven retail shops opened at The Wave in late 2011. An 18-hole golf course at the ITC was completed in 2011, and around 200 members belong to the club, according the developer. “There is a synergistic relationship between the tourism and real estate sectors in Oman,” Nasser Masoud Al Sheibani, The Wave’s vice-president of finance, told OBG, “High-quality residential developments should naturally include infrastructure that not only attracts tenants and property buyers, but also tourists.”
Growing Demand
While ITCs play a key role, the most significant development for the housing market will be a surge in demand expected over the coming decade. About 400,000 new units will be required by 2022 to meet the burgeoning housing demands of Omanis and foreign nationals, according to the local English-language daily Times of Oman. As residential units in the sultanate numbered around 300,000 in April 2012, an additional 400,000 new units over 10 years represents a dramatic increase. Notably, many of the new homes will need to be affordable for lower-income families. A September 2011 report produced by the real estate consultancy Jones Lang LaSalle (JLL) estimated that there was a shortage of 15,000 affordable housing units in Oman. Defined as living on a monthly income of less than OR450 ($1172), low-income households totalled around 300,000, according to a JLL estimate, and 95% of those families already live in affordable dwellings.
Affordable Homes
The lack of affordable housing can be attributed to several factors, including poor access to cheap land and limited revenue in comparison to other types of development projects. In addition, small construction firms working on smaller developments have traditionally been the major players in low-income housing in the country.
Steps are being taken to significantly increase access to affordable housing in the sultanate. For example, the Housing Loan Programme offers soft, interest-free loans to qualifying Omani families. The maximum loan amount offered is OR20,000 ($52,121), and loans are provided directly by the government. The programme is operating with a budget of around OR49m ($127.6m) for the five-year period from 2011 to 2015, according to the Ministry of Housing, and operates with the objective of constructing and repairing homes for families with a monthly income of OR300 ($781) or less. Applicants over 60 years old with a monthly income of OR400 ($1042) or less also qualify for assistance.
As of mid-September 2012, 2230 families had benefitted from the Housing Assistance Programme in 2012. This represents an increase in aid from 2011 when 2189 families were helped by the scheme. The largest numbers of beneficiaries in 2012 were outside of the capital in the eastern region of Al Sharqiyah as well as the governorates of Al Dhakhiliyah and Dhofar.
In addition to meeting an increased volume of assistance requests, Oman’s affordable housing programmes face a number of other challenges. For example, a lack of proficient contractors in some parts of the country slows down project implementation. Identifying the best-suited investors and contractors also presents difficulties for developing affordable housing schemes.
Commercial Property
Despite an oversupply of space, demand for office real estate in Oman remains relatively stable. According to recent figures provided by Cluttons, demand in 2011 for offices ranging from 100-200 sq metres was the strongest, with about half the market looking for a space of this size. Currently, smaller and fully furnished offices located in higher-quality buildings are particularly sought after, while demand for larger spaces is much lower. Interest in spaces in excess of 1000 sq metres most often comes from government agencies. Availability of office space was somewhat limited until 2011. Recently completed projects in the Muscat area have increased the supply of office space by more than 100,000 sq metres, according to Cluttons. Another project, the Saud Bahwan Plaza in the Muscat suburb of Al Ghubarh, should be finished shortly, adding roughly 50,000 sq metres of additional Grade A space.
One challenge facing office landlords and developers is providing adequate parking. Cluttons has reported that while there is a rule that there must be one car parking spot per every 50 sq metres of office space, ideally this ratio should be lower. “Despite car parking shortages at present, the concerned authorities have made it clear that all new buildings must have sufficient parking,” said Salman Jalil, operations manager for Oman at eqarat.com, a property consultancy. “Naturally, it will take time for parking supply to meet demand, but the market is headed in the right direction.”
Making Room
Retail space in Oman is divided among large shopping malls and smaller shops located on the ground floor of office and residential buildings. While there is some oversupply of space in larger shopping malls, there is an undersupply of smaller, roadside shops. According to recent figures provided by eqarat.com, average roadside retail space is renting for around OR8-10 ($20-26) per sq metre per month. Average retail space in large shopping malls is renting for about OR15-20 ($39-52) per sq metre per month.
In terms of both rental value and footfall, Muscat City Centre mall leads the segment at present. However, the market is changing as a number of other retail outlets open for business. Muscat Grand Mall, part of the new Al Tilal Complex in Al Khuwair, opened in 2012 and offers more than 60,000 sq metres of floor space, according to Cluttons.
The new shopping mall provides shoppers with 160 retail units. A multiplex cinema opened its doors in August 2012, and a Carrefour Express anchors the mall. The Wave has also added new retail space to the market with its 5100-sq-metre retail area offering restaurants, a convenience store, a dry cleaners and a WH Smith retail outlet. The ITC plans to bring in the British supermarket Waitrose and eventually add another 12,000 sq metres or so of retail space in various precincts around the village area and marina, according to recent figures provided by The Wave.
Warehousing and logistics-related real estate present significant opportunities for the property market. While there is currently strong demand for warehousing space and light industrial units, there is also a short supply of well-suited rental properties. At OR4 ($10) per sq metre per month, average warehouse rental values are highest in the Ghala Industrial Area and the Rusayl and Misfah Industrial Estates in the capital area, according to data published by Cluttons. Rental values at the Barka Industrial Area and Mabellah Estate average around OR3.50 ($9.12) per sq metre per month. Cluttons sees a number of locations as prime sites for increased logistics-related property, including the cities of Sohar, Duqm and Salalah as well as the developing Barka Industrial Area.
Improved Regulation
As Oman’s real estate sector continues to expand with emerging opportunities such as warehousing, efforts are being made to improve the brokerage process. Buying and selling property in the sultanate is still relatively informal, and currently anyone can be an estate agent. The government has recognised the importance of stricter rules for property brokerage, and a royal decree issued in 2010 mandated that freelance brokerage would no longer be permitted. Although the law went into force in October 2012, it will likely take some time to fully change the current brokerage process.
While state officials work to better regulate the market, steps are also being taken by industry to improve the quality of brokerage services. Eqarat.com, for example, has made the training of its sales team a major priority. The property consultancy focuses specifically on building its sales team’s training in more specialised areas of consulting, market research and customer relations. However, Mish’al Mohamed Abdullah, the general manger of Zain Property Development, said, “The government should be more lenient about the types of properties that are allowed to be built. They need to meet developers halfway and allow for more negotiations and listen to contractor grievances in this regard.”
Outlook
Oman’s property market should continue its relatively positive course into 2013. Some adjustments will need to be made as oversupply has reduced demand for some types of office and retail space. Altered economic conditions have also pushed ITCs to modify building plans.
However, ongoing developments throughout the wider economy are affecting real estate in beneficial ways. Major investment in infrastructure is opening up new areas for development, and the country’s burgeoning logistics sector is creating opportunities for warehousing and light industrial facilities. In addition, demand for housing is expected to increase substantially as thousands of young Omanis look to become new homeowners over the coming decade.
