Construction activity will be key to realising the objectives of Oman Vision 2040, which prioritises diversifying the economy away from a reliance on hydrocarbons revenue. Public-private partnerships (PPPs) present an opportunity to accelerate progress towards strategic goals such as affordable housing while also preserving public finances. Matching real estate supply with the precise demands of the residential and commercial market will remain important as economic activity recovers from the Covid-19 pandemic. Meanwhile, the opportunity for non-Omanis to obtain residency visas through property investment is expected to raise the sultanate’s appeal to international investors in 2023 and beyond.
Oversight
Key among the government bodies tasked with oversight of the sector is the Ministry of Commerce, Industry and Investment Promotion, which maintains broad supervisory powers for industrial development and construction. The Ministry of Labour – which develops workforce laws, provides vocational training programmes and monitors Omanisation quotas amid a drive to increase labour force participation among nationals – plays an auxiliary role in the sector. The primary regulatory body for real estate is the Ministry of Housing and Urban Planning (MHUP), which prepares laws and decrees, administers social housing and provides land grants.
Local construction companies are not given preferential treatment during project bidding, and largescale infrastructure projects are open to foreign companies without a local partner. The construction sector is competitive, including a number of international players. Private players in the real estate sector include a range of local firms, foreign-domestic joint ventures and branches of multinationals.
Land Law
All land is declared property of the state unless otherwise specified in provable title deeds, as per the Land Law of 1980. Omani nationals may own land on a freehold or leasehold basis. In mid-2021 the MHUP released new conditions for the disbursement of government land, with Omani nationals previously entitled to receive land at the age of 23 for personal use, as well as a low-interest mortgage from the state-run Oman Housing Bank. The new conditions seek to prioritise families, reduce waiting times and stimulate real estate construction. As of October 2021 a combined 212,000 citizens were on the waiting list in the three governorates of Muscat, Al Dakhiliyah and Al Batinah South, based on MUPH data. Foreign individuals or companies may be granted a usufruct ownership – which grants freehold rights to use land for projects that support economic or social development – that typically spans 50 years. In 2004 the freehold ownership of land or constructed property was given to GCC citizens, and wholly GCCowned companies, for residence and investment.
Foreign Ownership
A March 2022 directive from the MHUP permits foreign investors to purchase real estate in the country, with the exception of properties located near strategic sites such as those with military importance. Investors who purchase a property exceeding OR250,000 ($649,000) are eligible for a second-class residency, extendable every five years. This group may purchase residential property. Investors who purchase property exceeding OR500,000 ($1.3m) are eligible for first-class residency, extendable every 10 years. First-class residency holders are also permitted to purchase an additional residential, commercial or industrial property outside of the areas licensed for foreign ownership – a right that is transferable. Non-Omanis may also purchase properties valued below OR250,000 ($650,000), provided that these properties are located within integrated tourism complexes (ITCs). Mixed-use ITCs are viewed as a conduit for boosting construction, real estate and tourism activity while generating footfall for local businesses. This move to widen property availability is expected to help augment the appeal of the country to foreign investors, inject capital into the real estate market and support GDP growth. “In terms of regulation, it is positive to see these changes,” Hilal Jaber, managing director of property management company Hilal Properties, told OBG. “Nonetheless, there remains scope for additional reforms to attract further investment.”
Construction Performance
Construction remains one of Oman’s largest non-hydrocarbons sectors and is therefore an important driver of economic diversification. The construction segment contracted by 16.9% in real terms in 2020, based on to the latest available data from the Central Bank of Oman (CBO) and the National Centre for Statistics and Information (NCSI). In addition to the pandemic, headwinds for that year included limited national revenue amid fluctuating oil prices and production cuts led by the Organisation of the Petroleum Exporting Countries; sovereign credit rating downgrades, which have since recovered; and lower public spending on infrastructure and other construction projects. Construction accounted for 44.3% of non-hydrocarbons industrial activities in 2020, based on CBO data. After a 3.2% contraction in real GDP during 2020 and a 3% recovery during 2021, Oman’s economy rebounded by an estimated 4.4% in the first 10 months of 2022, as per the IMF’s World Economic Outlook, with 4.1% growth forecast for 2023 (see Economy overview).
Forecast
Prospects for Oman’s construction sector generally remain upbeat. Data and analytics firm GlobalData expects the sector to register annual average growth above 3% in the 2023-26 period, according to a December 2022 report. Estimates from the Economist Intelligence Unit are even more optimistic, with an October 2022 analysis forecasting 6% growth during 2023-24. Growth prospects are led by a pipeline of manufacturing plants, energy projects, housing development and transport infrastructure. Looking further ahead, in a July 2022 report market research firm Mordor Intelligence forecast the sector to register a compound annual growth rate of over 5% during 2023-28, due to rebounding investor interest and government initiatives. The sector looks poised to present opportunities for domestic and foreign contractors, investors, consultants and suppliers in the coming years.
Government Spending
Limiting public spending is a priority for 2022-24, with the medium-term fiscal plan looking to facilitate sustainable public debt and raise reserves. As a marker of some progress in fiscal conditions, in 2022 the sultanate was expected to have recorded its first surplus since 2013 – reaching OR1.1bn ($2.9bn), based on preliminary results in January 2023 – led by higher-than-expected revenue from oil and gas. October 2022 analysis from the Economist Intelligence Unit forecast oil prices to remain sufficiently elevated in 2023-24 for the sultanate to break even, support national accounts and thereby enable strategic investment, offering a possible boon to priority construction projects. The introduction of value-added tax, at a rate of 5% effective from April 2021, serves as another source of non-oil government income.
Public-Private Collaboration
In a move promoting socio-economic development in tandem with fiscal stability, the Ministry of Finance is expected to encourage private investment in infrastructure in the form of PPPs. New legislation – effective July 2019 and accompanied by executive regulations that went into effect April 2020 – outlined requirements for the financing and procurement of public works, and provided an institutional framework for the delivery of public-private infrastructure projects. PPPs present a cost-effective opportunity to attract investment in projects with economic or social importance, reduce government costs and help sustain broader economic growth.
Industrial Cities
Construction growth is set to be facilitated by the Public Establishment for Industrial Estates (Madayn). In January 2021 Madayn launched its own Vision 2040, which includes 6500 industrial and factory projects, with the aim of creating 270,000 jobs by its end date. The vision seeks to promote sustainable socio-economic development through strengthening PPPs; adopt best practices concerning environmental standards; and integrate technologies to meet international business requirements. To this end, Madayn offers incentives such as tax and duties exemptions; a 30-year lease period – renewable for the same length of time – for land and facilities; and cooperation with public authorities through a designated investment window. The long-term plan includes the construction of new industrial cities in Ibri, Al Mudhaibi, Al Rawdah, Shinas and Thumrait. Related projects had attracted over OR7bn ($18.2bn) of investment as of November 2022, according to Madayn, signalling a robust pipeline of construction opportunities in the years from 2023.
Development Plan
The government’s 10th fiveyear development plan runs from 2021 to 2025. Targets include raising the contribution of transformative industries from 10.8% of GDP in 2020 to 12.2% by 2025; creating 135,000 jobs; and increasing the contribution of transportation and logistics from 6.4% of GDP to 7.5% of GDP over the five-year period. The government committed to nominally increasing infrastructure spending over the period, from OR10.9bn ($28.3bn) in 2021 to OR11.4bn ($29.6bn) by 2025. In March 2022 the Ministry of Finance added a raft of new projects to the plan. This list is dominated by 10 projects in transport, including eight road projects and the first phase of developing Khasab Airport in the Musandam exclave. Other projects include the completion of 76 government schools; construction of three new hospitals in three governorates, with companies invited to submit proposals by end-October 2022; three tourism initiatives; and two municipal development projects.
Smart Cities
With the regulation of construction activity often happening at the municipal level, the Oman National Spatial Strategy (ONSS) aims to ensure that public and private construction works in each governorate support Vision 2040. The ONSS is also aligned with the UN Sustainable Development Goals, while aiming to ensure that Omani cities remain competitive. In mid-2022 the MHUP invited international urban engineering consultancy firms to bid for the design of smart cities in Nizwa, Sohar and Salalah. The ONSS envisions that Sohar, located within the Al Batinah North Governorate in close proximity to the UAE border, will become a national gateway city. Facilities at the Sohar Port and Freezone, currently in their second phase of development, are designed to leverage Oman’s renewable energy capacity through measures including 600 ha of land designated to solar plants. Meanwhile, the ONSS envisions that Nizwa, the Al Dakhiliyah Governorate’s largest city, will become a business centre for design, fashion, culture and entertainment.
Building Materials
Although the raw materials required to produce cement are produced within Oman, the country relies on imports to meet an annual demand of some 9m tonnes. “High production costs are a key challenge for boosting local cement production, with record coal prices adding additional pressure towards the end of 2022,” Salem Al Hajri, CEO of Oman Cement Company (OCC), told OBG. “Increasing the capacity of local producers could help unlock economies of scale,” Al Hajri added.
Three cement producers operated five cement plants in the sultanate as of January 2023. Three facilities are under the purview of Raysut Cement: a 3m-tonne-capacity integrated plant near Salalah, in the Dhofar governorate; a factory in Sohar; and a 1m-tonne grinding unit in Duqm that began operations in the fourth quarter of 2021. OCC operates a 4.2m-tonne integrated plant in the Rusayl industrial area near Muscat. In September 2021 the firm unveiled plans to raise the plant’s capacity to 7.2m tonnes per year by 2025. In January 2022 the stateowned company launched a construction tender for a fourth cement production line at the plant, an expansion that is expected to add 10,000 tonnes of capacity per day upon completion.
The 900,000-tonne Wadi Saa plant, meanwhile, is managed by Al Madina Cement, a subsidiary of the UAE’s Al Buraimi Group. The year 2020 saw the launch of Moon Iron and Steel Company’s $300m steel billet and rebar manufacturing plant in Sohar Industrial City, with an annual capacity of 1.2m tonnes of billets and a rolling capacity of 1.1m tonnes.
Permits
The number of procedures and required length of time to secure construction permits in Oman has remained constant in the 2012-22 period, based on World Bank indicators: the process averages 15 procedures across 125 days, approximately on par with the MENA average. The process entails permissions from the MHUP, the Environment Authority, the Ministry of Regional Municipal and Water Resources, the local municipality and the Royal Oman Police. The authorities have been working to enhance the ease of these processes. For example, as of early 2023 Muscat Municipality required seven processes to secure a permit and offered various building e-permit services such as application renewal, change of ownership and new applications. Oman ranks among the most affordable destinations globally for the typical cost of construction permits, which equated to 0.8% of the property value in 2020, compared to an average of 4.4% for MENA.
Real Estate Performance
The value of real estate traded in Oman in 2021 increased slightly from the previous year, rising by 4% to reach OR2.6bn ($6.8bn). Despite headwinds, these figures were not far below the OR2.8bn ($7.3bn) recorded in 2019. The value of real estate traded reached OR2.7bn ($7bn) by the end of 2022, up 6% according to the NCSI.
Residential
Oman’s residential market, which accounts for the majority of real estate in the sultanate, consists primarily of two segments: purchases by Omanis for self-occupation; and rentals, largely serving workers from overseas. Oman has one of the highest home ownership rates globally, reaching 91% in January 2021, according to the MUPH. Only a small proportion of Omanis rent residential units, preferring to occupy villas rather than apartments.
As of January 2023 the global cost-of-living database Numbeo estimated the average cost to purchase a one-bedroom residential unit was OR450 ($1170) to OR1200 ($3120) per sq metre within the centre of Muscat, and OR280 ($727) to OR1100 ($2860) beyond the capital. The database estimated that rental prices for a one-bedroom apartment within the capital’s centre range from OR180 ($468) to OR400 ($1040), and three-bedroom figures range from OR350 ($910) to OR700 ($1820). Outside of this area, the rate decreases to OR140 ($364) to OR250 ($650) for a one-bedroom and OR210 ($546) to OR500 ($1300) for a three-bedroom.
According to an October 2022 report from property advisory firm Savills, the large-scale development of low- to moderate-grade apartments with limited or no facilities has created an oversupply in the lower end of Muscat’s residential market. Indeed, as per the 2020 census Muscat had some 80,000 unoccupied residential units, which equated to almost one-fifth of total supply. Meanwhile, supply at the higher end of the market – comprising primarily larger, mixed-use projects – remains limited. Prior to the onset of the pandemic a growing number of young, married Omani couples and retirees were seeking residential units in ITCs that offer higher rental returns and prospects for more capital gains than normal apartments or villas, largely because gated communities were in high demand. This underlines the importance of aligning property type and amenities with the evolving demands of the market.
Rental Trends
Foreign workers are a key driver of demand for residential rentals. Due to the pandemic, the expatriate population had declined by almost 15% by mid-2021, recovering by 10% during the first half of 2022. Taking into account global headwinds and local concerns, professionals from overseas may look to limit spending amid rising living costs. Competitive pricing for residential rentals will likely be important, and short-term leases and furnished apartments, in particular, may see strong demand.
Another important trend is that the sultanate has experienced a so-called “flight to quality” since 2020, as high-end residential rentals have become more affordable, according to Savills. For instance, villas and townhouses in Al Mouj, the sultanate’s largest ITC, had high occupancy levels as of February 2022. These properties outperformed the wider market in terms of rental prices in recent years, and rates rose during the first quarter and second quarter of 2022. This suggests positive trends for high-demand, low-supply properties from 2023, particularly for well-established projects that offer lifestyle appeal.
Affordable Options
The provision of affordable housing for Omanis is a government priority, with an estimated 911,000 additional residential units required by 2040 to accommodate the sultanate’s growing population. In October 2021 the MUPH announced plans for five new residential projects, comprising 4800 housing units for 24,000 people, under its Soruoh initiative. Soruoh seeks to develop integrated residential projects through PPPs.
The first Soruoh development, the Hai Al Naseem project in Barka, began in March 2022 with keys slated for hand-over in May 2023. Of the five announced projects, the largest is in Al Batinah South’s Nakhl, which will provide housing for around 8000 people in 1600 units covering 637,000 sq metres of land. Three projects are located in Muscat while the other is in Bidbid, in the Al Dakhiliyah Governorate. Local and international developers were invited to submit an expression of interest for the projects by November 2021. A further five sites in five governorates – Dhofar, Musandam, Al Batinah North, Al Batinah South and Al Sharqiyah South – were opened to real estate developers in September 2022.
Housing Finance
As part of the Social Housing Scheme and Housing Aid Programme, a January 2023 MUPH decision increased the maximum value of financing to build or reconstruct a residence from OR20,000 ($52,000) – as per the pre-existing 2011 decision – to OR25,000 ($65,000) for families comprising two or three members. Families comprising four or more members receive OR30,000 ($78,000). In 2022 some 1500 families received housing assistance from the programme, totalling some OR35m ($91.0m) – up from 1300 families, and OR30m ($78.0bn), in 2021. Oman Housing Bank provides soft housing loans to various segments of the population. By end-October 2022 the bank had issued almost 51,500 loans worth some OR1.4bn ($3.6bn) since its 1977 establishment, including 2600 subsidised loans with a value exceeding OR110.8m ($288m).
Office Space
Supply in Oman’s office real estate segment outstrips demand. Rental rates were already on a downward course prior to 2020, and the pandemic period put more pressure on demand. Muscat’s office supply was some 400,000 sq metres as of October 2022, with an additional 100,000 sq metres being built. Office space requirements are typically below 2000 sq metres and few buildings exceed occupancy levels of 70%. Demand is largely centred on smaller, finished spaces that support employee well-being, with features such as natural lighting, reserved parking, and the availability of food and beverage outlets given prime importance. Raising occupancy is likely to remain a priority for owners, presenting an opportunity for tenants to secure high-quality office space with competitive amenities.
Tourism
Oman’s tourism-related infrastructure expanded in the decade prior to the pandemic, with the industry identified as important to diversification efforts. Hotels in the sultanate recorded revenue of some OR101.7m ($264.3m) in 2021, marking an increase of 19.2%. Revenue for 2022 had already surpassed the full-year 2021 figure by August – at over OR108m ($280.7m), according to the NCSI – but remained below the 2019 total of OR229.5m ($596.5m). In May 2022 the Ministry of Heritage and Tourism estimated that 70 new hotel facilities would open that year, adding 4500 rooms, 3000 of which were planned across 19 hotels in the Muscat area.
In January 2022 the Oman Tourism Development Company formed a joint venture with the UAE’s Diamond Developers for the first phase of an integrated tourism project in Yiti (see Tourism chapter). The $1bn first phase will host over 1600 energy-efficient residential units, including 300 villas, as well as green spaces, education facilities, retail units and tourist attractions. The 90-ha project will be powered by 100% solar energy and biogas when completed in 2025, with a view to becoming a model for future cities. In June 2022 the Environment Authority issued tenders for two ecotourism projects: a design and supervision consultancy contract to develop the 220-sq-km Al Saleel National Park in Al Sharqiyah South Governorate; and a design-build tender for Misfer National Park in the 2800-sq-km Al Wusta Wildlife Reserve. These are among 50 sites that are being explored for ecotourism and conservation projects, as reported by regional media.
Retail
A number of malls have been constructed in Muscat in recent years, including the 145,000-sq-metre Mall of Oman, which became the sultanate’s largest mall upon opening in September 2021. The Mall of Muscat was launched in Mabela in 2019, and Al Araimi Boulevard was inaugurated in 2018. In the south of the sultanate, the OR35m ($91m), 55-000-sq-metre Salalah Grand Mall opened in August 2022.
During the pandemic, brick-and-mortar retailers faced movement restrictions, and closures of malls and non-essential shops. The fundamentals of Oman’s retail market nonetheless suggest some cause for long-term optimism – including a large local population relative to other GCC countries, a recovering number of tourists and growing awareness of international trends. Mixed-use developments may offer appeal to small and medium-sized enterprises in the years ahead. Indeed, rental values for non-mall retail real estate remained consistent in Al Khoudh, Al Hail, Mawaleh, Seeb and Mabelah – home to a growing number of villas – during the pandemic despite decreasing across much of the rest of Oman, according to a February 2022 report from local real estate and property manager Al Habib & Company.
Innovation
Ongoing innovation signals an enhanced ease of doing business for construction and real estate players in the years ahead. “Research and development (R&D) in the local construction industry is growing as a result of disruptions caused by the pandemic, although more needs to be done to enhance local capabilities,” David White, CEO of United Engineering Services, told OBG. “The sector still imports much of the advanced technology and equipment it needs. Government support is required for companies investing in R&D.”
In February 2022 the MUPH launched the pilot phase of AMLAK, its digital property platform. AMLAK is designed to promote accessibility and transparency across a range of services for stakeholders including citizens, investors and public authorities. The following month, the MHUP launched the pilot phase of TATWIR, a digital platform for real estate, and in May 2022 launched an electronic bidding platform for land under the usufruct system.
Outlook
Oman’s economic diversification objectives and other priorities outlined in Vision 2040 look set to drive construction in the years from 2023. Construction activity is an enabler of economic diversification, with economic-multiplier effects offered by infrastructure development for industry, tourism and transportation. Construction activity will also be supported by sustained investment in oil and gas projects in the years ahead. Meanwhile, the PPP law and related executive regulations underline essential opportunities for the private sector to support socio-economic development and fiscal stability.
