Oman's property market is depressed
Lalaine C. Delmendo | August 08, 2019
Muscat, which accounts for more than half of property transactions, registered the biggest price decline of 28.1% during the year to Q1 2019 to an average of OMR 98,181 (US$255,015). It was followed by Ash Sharqiyah South (-25.8%), Al Buraymi (-20.7%), Ash Sharqiyah North (-14.3%), Al Batinah South (-8.5%), Al Batinah North (-4.3%) and Ad Dakhliyah (-3.5%).
In contrast, Adh Dhahirah saw its real estate prices almost quadruple during the year to Q1 2019. Strong property price rises were also recorded in Dhofar (66.5%), Al Wusta (32%) and Musandam (31.8%).
In Q1 2019, the total value of property traded in Oman fell by 12.2% y-o-y to OMR 681.23 million (US$1.77 billion), in contrast to a 6.5% growth recorded in the same quarter last year, based on figures from the National Centre for Statistics and Information (NCSI). Likewise, the number of planned land plots for residential construction plummeted by more than 40% to 32,163 units in 2018 from a year earlier.
Overall, Oman's property prices and rents are expected to continue falling in the medium term, partly as a result of the extended ban on expatriate visas for 87 occupations, according to local real estate experts.
The Ministry of Manpower first introduced the expatriate visa ban in January 2018, in an effort to reduce the number of unemployed locals as part of the Omanization project. The ban has been extended several times since. As of March 2019, about 55,000 expats who previously worked in Oman have been laid off by companies, based on government estimates.
The Omani economy grew by 2.1% in 2018, an improvement from the prior year's 0.9% contraction but far lower than the annual average growth rate of 5.1% from 2012 to 2016, according to the International Monetary Fund (IMF). However, the IMF has recently cut the country's 2019 economic growth forecast to just 0.3%, from the initial projection of 1.1%, as OPEC-led production curbs slash oil-related growth among Gulf energy producers.
In May 2019, crude oil prices stood at an average of US$71.32 per barrel, down by 7.4% from US$76.98 a year earlier but up 41.7% from US$51.59 two years ago.
Escalating rents in Oman
Rents in Oman have skyrocketed in the recent past, especially in Muscat and other high demand areas. After rising 21.4% in 2008, rents rose 16% in 2009. But by 2010, average rental rates were dropping. The rent hikes in the 2 years before mid-2008 prompted a huge new supply of residential rental properties especially in the capital area, according to Cluttons, much of it of lamentably poor design and quality.
In central areas, rents for two-bedroom apartments in Q1 2011 were around OMR 400 (US$ 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 71% of total government revenues in 2018, from 72.9% in 2017 and 68.2% in 2016.
In 2018, Oman’s crude oil production increased slightly by 0.8% to 357 billion BBL, in contrast to a fall of 3.7% a year earlier, after the first phase of the massive Khazzan gas field began operations in September 2017, according to NCSI. The Ghazeer project, Khazzan’s second phase of development, is expected to come onstream in 2021.
While Oman continues to enhance its oil recovery techniques to boost oil production, it also has simultaneously pursued a diversification plan “Vision 2040” (a repacking of Vision 2020 launched back in 1995) that aims to boost tourism, modernize agriculture, foster technology and startup ecosystems, and establish free industrial zones.
Tourism is currently one of the most vibrant segments of the Omani economy with arguably the highest untapped potential. In fact, World Travel & Tourism Council’s The Travel & Tourism Economic Impact 2018 Oman report ranked the country 18th globally for its potential for tourism growth for 2018-2028.
Tourism’s direct contribution to Oman’s economy amounted to OMR912 million (US$2.37 billion) in 2018, up by 25% from OMR728 million (US$1.89 billion) in 2017, equivalent to 2.9% of GDP.
In March 2018, Muscat International Airport opened a new terminal, which is expected to attract new airlines. Last year, Oman Air introduced flights from Istanbul, Casablanca and Moscow.
Moreover, 45 new hotel facilities were opened in 2018, boosting hotel rooms 8% to 22,182 in 2018, from 20,581 in 2017.
Tourist arrivals in Oman are projected to increase at a compound annual growth rate of 5% in the next five years to reach 3.5 million people in 2023. The growth will be fuelled by visitors from India, which accounted for 21% of arrivals in 2018, followed by visitors from the UK (9%), Germany (7%), Philippines (6%) and UAE (6%), according to Colliers International.
“The latest data demonstrates the growth in tourism arrivals to Oman and is set to continue as we look ahead to 2023, supported by the recently opened Muscat International Airport expansion as well as strategic investment from the government as it turns to tourism to diversify its income streams away from hydrocarbon receipts,” said Danielle Curtis of Arabian Travel Market.
Oman’s fiscal position is now improving, mainly due to higher oil revenues and tight spending limits. In 2018, the Sultanate’s fiscal deficit narrowed to 7.7% of GDP, sharply down from 13.5% of GDP in 2017, 20.6% of GDP in 2016 and 17.5% of GDP in 2015, according to the Central Bank of Oman.
However in April 2019, Standard & Poor’s affirmed Oman’s BB/B foreign and local currency credit rating but revised its outlook from stable to negative, which means there is a good chance of another downgrade. Also, Moody’s and Fitch had both downgraded Oman to junk earlier, amidst continued fiscal challenges due to volatile oil prices.
In February 2017 the government made significant changes to the country’s income tax laws, to address the fiscal deficit (Royal Decree 9/2017).
The key changes include:
- Standard corporate tax rate 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.
A 5% value-added tax (VAT) may also be introduced this year.