As it eases its dependence on oil and gas, Oman has turned to integrated tourism complexes (ITCs) as a conduit for boosting construction, real estate and tourism activity. ITCs are mixed-use developments comprising residential areas, hotels, resorts, leisure activities such as golf, and other amenities, and are currently the only places where non-GCC nationals can purchase property in Oman. To date ITCs have proven a successful model in the country, generating around 3% of GDP as of 2018. A new wave of ITC developments are expected to increase this contribution and provide a much-needed boost for the slowing real estate market. Anticipated changes to property ownership laws for foreigners, which are due to come into force in early 2020, are also a potential game-changer.
Targeted Demographic
Oman’s first ITC opened in 2005 with the aim of attracting investment from expatriates. Foreigners account for a large share of the population, at 43.7% in 2018. Purchasing property in an ITC entitles non-GCC nationals to residency rights, a perk for investors looking for tax benefits outside their home country, or for those seeking holiday homes. In practice, however, Omani citizens are increasingly buying properties in ITCs, as such homes offer potentially higher rental returns and prospects for more capital gains than normal apartments or villas, largely because gated communities are in high demand.
The appetite is not limited to Omani buyers. GCC nationals comprise a large portion of investors in ITCs, and in 2018 the total number of GCC nationals who owned property in Oman increased by 15.3%, according to real estate surveyor Cavendish Maxwell. This increase is due to multiple factors, including high returns on real estate investment compared to other GCC countries, and the desire to own holiday homes in popular tourist spots like Salalah and Masirah Island.
Rents & Occupancy
Major ITCs such as Al Mouj Muscat, Muscat Bay, and Muscat Hills Golf and Country Club have led the country’s housing market in growth and value. These developments have consistently attracted buyers and tenants since opening – resulting in low vacancies and high rents.
That said, Oman’s ITCs have not been immune to broader market declines in property prices and occupancy rates, driven by expats leaving the country in light of Omanisation policies (see overview). For example, prices in Al Mouj declined by 10-15% in 2018, according to a March 2019 report by local property manager Al Habib & Company. The planned construction of additional ITCs – such as the $1bn Quriyat project south of Muscat, the first phase of which is due to open in 2022 – is likely to place further pressure on prices and occupancy rates at existing ITCs. However, with tourist numbers forecast to grow at a compound annual growth rate of 5% over 2018-23 and foreign property ownership laws due for reform, officials are confident more projects of this type will be financially viable.
Upcoming Reform
In May 2019 the government announced that it intended to change regulations within the next 12 months to potentially allow foreigners outside of the GCC to own leasehold properties; currently, however, this remains unlikely. Nevertheless, if enacted, the move is an encouraging sign and one that is expected to attract further foreign investment to help revitalise the real estate market. Changes to foreign ownership laws are a welcome prospect for developers, which have needed to adapt to succeed in challenging times. “The oversupply in the market is largely due to the recent exodus of expatriates. To fill the current gap in the real estate market, the labour and foreign ownership laws need to be revised, as these revisions will help the sector recover and increase demand for property,” Hazza Al Saadi, managing director at local company Wujha Real Estate Developers, told OBG. While regulatory reform that can help boost the sector seems to be on the way, in the meantime developers must continue to present innovative real estate and incentives to capture foreign investment.
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