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Oman's property market shows signs of improvement
In Q1 2018, the average value of real estate traded in Oman rose by 14% to OMR 37,854 (US$98,332) from a year earlier, according to the Ministry of Housing. In fact in Muscat, which accounts for more than 65% of property transactions, the average value of real estate traded surged 67.6% y-o-y to OMR 136,558 (US$354,733) over the same period.
Demand is now rising. In Q1 2018, the total value of property traded in Oman increased 6.5% y-o-y to OMR776.3 million (US$2.02 billion), in sharp contrast with the 61% decline seen in 2017, based on figures from the National Centre for Statistics and Information (NCSI).
The government's efforts to boost the economy has resulted in several encouraging developments for the property market, such as the creation of a real estate investment fund (REIF), which is expected to increase investments in larger scale real estate projects. However, the Ministry of Manpower's decision to extend the temporary ban on the issuance of work permits to expats in key sectors is expected to adversely impact demand for residential rental properties, according to Cluttons.
Overall, Oman's real estate market is projected to stabilize in the medium term, supported by improving economic conditions, as well as the construction of a new airport in Muscat and the production of natural gas at the Khazzan gas field, according to Cluttons.
The economy contracted by 0.3% in 2017, after annual growth rates of 1.8% in 2016, 4.7% in 2015, 2.8% in 2014, 4.4% in 2013, and 9.3% in 2012, according to the International Monetary Fund (IMF), as oil output contracted by 2.8% due to the implementation of the OPEC agreement. The economy is projected to improve, with a modest growth of 2.1% this year, amidst rising oil prices.
In May 2018, crude oil prices increased to an average of US$76.98 per barrel, up from US$54.25 in 2017 and US$43.5 in 2016 and the highest level since November 2014.
Escalating rents in Oman
Rents in Oman have skyrocketed in the recent past, especially in Muscat and other high demand areas. After rising 21.4% in 2008, rents rose 16% in 2009. But by 2010, average rental rates were dropping. The rent hikes in the 2 years before mid-2008 prompted a huge new supply of residential rental properties especially in the capital area, according to Cluttons, much of it of lamentably poor design and quality.
In central areas, rents for two-bedroom apartments in Q1 2011 were around OMR 400 (US$ 1,040) per month, down from OMR 425 (US$ 1,105), according to Savills Oman. Rents for 4-5 bed villas were around OMR 1,150 (US$ 2,991) to OMR 1,500 (US$ 3,901).
Rents in The Wave range from OMR 800 (US$ 2,081) to OMR 1,750 (US$ 4,551) per month, depending on the housing type, while rents in Muscat Hills range from OMR 600 (US$ 1,560) to OMR 1,700 (US$ 4,421).
In June 2008, as a result of the rising rents, new rules were introduced.
- Landlords may now only increase the rent every 3 years, with a maximum rent increase of 7% of the annual rent stipulated in the lease contract.
- The law also bars landlords from evicting tenants before the end of the lease, and imposes a minimum lease period of 4 years for residential property, and 7 years for commercial
Low income tax in Oman
Rantal Income: Rental income is taxed at a flat rate of 3%.
Capital Gains: There are no taxes levied on capital gains realized by individuals, unless it is derived from a business or professional activity. Capital gains derived from trade or business are taxed at a flat rate of 15%.
Inheritance: There are no inheritance taxes.
Residents: No personal income taxes are levied in Oman. Trade or business income exceeding OMR30,000 (US$60,000) are taxed at a flat rate of 15%.
Buying costs in Oman are minimal
The total roundtrip transaction costs are just around 3%. Because of the relative immaturity of the real estate market most of the properties are bought from the government.
Oman's law is pro-landlord
The initial rent can normally be freely determined by the parties by mutual agreement.
The landlord's interests are protected by either:
a. An advance payment of three month’s or 1 year’s rent; or
b. Promissory note for the payment of rent throughout the lease; or
c. Post dated cheques for each of the rent payment dates.
Oil sector still dominates; economic diversification continuesOil remains Oman’s top revenue generator. Oil and gas revenues accounted for about 84% of total government revenues in Q1 2018, up from 72.9% in 2017 and 68.2% in 2016, based on figures from the CBO.
Oman’s gas output is expected to increase further after the massive Khazzan gas field began operations in September 2017. The country’s production of crude oil, refined petroleum products and natural gas is projected to expand by 5.2% this year and by another 3.2% in 2019, up from 2% in 2017, according to BMI Research.
While Oman continues to enhance its oil recovery techniques to boost oil production, it also has simultaneously pursued a diversification plan “Vision 2020” that aims to reduce the oil sector’s contribution to GDP from 46% today to 9% by 2020. Tourism is one of the key components of the government’s diversification strategy.
The tourism sector’s direct contribution to Oman’s economy amounted to OMR 0.85 billion (US$2.21 billion), or 3.2% of GDP in 2017. In March 2018, a new airport terminal at Muscat International Airport was opened, which is expected to increase tourist arrivals and to attract new airlines. This year, Oman Air will introduce flights from Istanbul, Casablanca and Moscow.
After the country’s fiscal deficit reached an alarming high equivalent to 21.4% of GDP in 2016, the government immediately made significant changes to the country’s income tax laws to alleviate the situation (Royal Decree 9/2017).
The key changes include:
- The standard corporate tax rate was raised from 12% to 15%
- A 3% tax has been introduced for micro businesses
- The tax-free threshold of OMR30,000 (US$78,000) has been removed
- Interest and dividend payments to non-residents are now subject to withholding tax of 10%
- The withholding tax exemption for ministries and other government bodies has been removed.
- Tax exemptions for hotels and tourist villages, mining, export of locally manufactured goods, agriculture, animal produce, fishing, education, and medical care have been removed.
- Exemptions for manufacturing companies have been limited to five years.
- Penalties and punishments for noncompliance have been strengthened.
As a result, Oman’s fiscal position is now improving. In 2017, the Sultanate’s fiscal deficit narrowed to 12.8% of GDP, amidst increased oil revenues, and tight spending limits. Oman’s fiscal deficit is projected at OMR3 billion (US$7.8 billion) this year, which is equivalent to about 10% of GDP, according to the Finance Ministry.
In May 2018, Standard & Poor’s affirmed Oman’s BB/B foreign and local currency credit rating, with a stable outlook, amidst narrowing fiscal and external deficits. Last year, Oman’s sovereign debt long-term rating had been downgraded below investment grade by the three credit ratings agencies (Moody’s, S&P’s and Fitch) with a negative outlook.