Oman’s property market is depressed

Lalaine C. Delmendo | August 08, 2019

There´s been a sharp decline in both demand and supply of property in Oman, caused largely by the country’s economic and financial woes. In Q1 2019, the average value of real estate traded in Oman fell by 10.7% to OMR 33,789 (US$ 87,764) from a year earlier, according to the Ministry of Housing. However quarter-on-quarter, property prices actually rose by 4.2%.

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%).

AVERAGE REAL ESTATE PRICES, Q1 2019

Governorates In OMR In USD y-o-y change q-o-q change
Muscat  98,181 255,015 -28.1% 2.4%
Dhofar  48,576 126,171 66.5% 54.9%
Musandam  15,268 39,657 31.8% 17.1%
Al Buraymi  13,770 35,766 -20.7% -26.7%
Ad Dakhliyah  15,469 40,179 -3.5% -19.7%
Al Batinah North  13,365 34,714 -4.3% -11.4%
Al Batinah South  18,841 48,938 -8.5% -15.1%
Ash Sharqiyah South  9,417 24,460 -25.8% -10.3%
Ash Sharqiyah North  8,432 21,901 -14.3% -9.5%
Adh Dhahirah  51,413 133,540 297.8% 324.4%
Al Wusta  7,432 19,304 32.0% -20.4%
OMAN  33,789 87,764 -10.7% 4.2%
Sources: Oman Ministry of Housing, Global Property Guide

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.

Oman gdp inflation

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.

Demand is falling

In Q1 2019, the total value of property traded in Oman fell by 12.2% y-o-y to OMR 681.23 million (US$1.77 billion), in contrast to 6.5% growth in the same quarter last year.  Mortgage deals were down almost 20% from the previous year at OMR 411.8 million (US$ 1.07 billion).

Real estate activity was concentrated in the Governorate of Muscat, accounting for 53.3% of total transactions in Q1 2019, followed by Al Batinah South (9.6%) and Adh Dhahirah (9.5%).

Integrated Tourism Complexes

Oman’s real estate market began to be opened to foreigners in 2002, as part of the “Vision 2020” plan, which aimed to reduce Oman’s dependence on oil revenues. GCC nationals were the first foreigners to gain the right to own real estate, then in February 2006 other nationalities were also given the right to own real estate, but only in ITC developments.

Under current laws, expatriate owners automatically get residency rights for themselves and their immediate families when they buy property in designated ITC developments.

The major ITCs such as Al Mouj Muscat (formerly The Wave), Muscat Bay (formerly Saraya Bandar Jissah), and Muscat Hills Golf and Country Club have led the country’s housing market in terms of growth and value. These ITC developments have continuously attracted owners and tenants, with low vacancies and high rents, due to their superior design, setting and facilities.

In Al Mouj Muscat, (formerly known as The Wave), the average price of a one-bedroom apartment was OMR 107,000 (US$ 278,000) in Q1 2019, according to Cavendish Maxwell Research. Over the same period, two-bedroom and three-bedroom apartments were priced OMR136,000 (US$353,250) and OMR139,000 (US$361,000), respectively. Villas in the area are offered for an average price of OMR375,000 (US$974,000).

In Muscat Hills, the average price of one-bedroom apartments stood at OMR72,000 (US$ 187,000) in Q1 2019. Prices of two- and three-bedroom apartments ranged from OMR130,000 (US$337,700) to OMR143,000 (US$371,400). Five-bedroom villas are sold for about OMR465,000 (US$1.21 million).

RESIDENTIAL PROPERTY PRICES, Q1 2019

  Property price (OMR) Property price (USD)
Property type Lowest Highest Lowest Highest
APARTMENT        
1 bedroom 20,000 107,000 51,950 277,900
2 bedroom 23,000 136,000 59,740 353,250
3 bedroom 52,000 150,000 135,000 389,600
VILLA        
3 bedroom 135,000 250,000 350,600 649,350
4 bedroom 170,000 370,000 441,560 961,000
5 bedroom 188,000 500,000 488,300 1,298,700
Sources: Cavendish Maxwell Research, Savills Oman, Global Property Guide

Aside from the continuous interest in the ITCs, there have been significant ‘off plan’ sales of new apartment developments in the Muscat neighborhood.

Newly launched off-plan apartment developments in Oman:

  • In Ruwi/East of Centre, the main business and commercial district of Muscat, the average price of two-bedroom apartments was OMR 51,000 (US$132,500) in Q1 2019 while three-bedroom apartments were sold for OMR 100,000 (US$259,740), according to Cavendish Maxwell Research.
  • In Qurum, Muscat’s upmarket suburb, one-bedroom apartments are sold for about OMR 85,000 (US$220,800). Prices of two- and three-bedroom apartments were OMR120,000 (US$311,700) and OMR 150,000 (US$389,600), respectively.
  • In Al Khuwair, prices of two-bedroom apartments start from OMR 43,000 (US$111,700) while for three-bedroom apartments, prices start from OMR 60,000 (US$155,800).
  • In Bawshar, one of the newly established residential areas in Muscat, one-bedroom apartments are priced OMR 49,000 (US$127,300) while three-bedroom apartments are offered for OMR 52,000 (US$135,000).

Oman will open more areas to expat homebuyers

The government has recently embarked on opening up more areas for expats and foreign homebuyers.

The Ministry of Tourism has recently signed an agreement with Amouage Hotels and Resorts for the development of Naseem A’Sabah, an integrated tourism complex worth OMR400 million (US$1.04 billion). This will be located on North Al Mawleh Beach, in the governate of A’Seeb and will feature a five-star hotel, a marina, a yacht club and 1,200 housing units. Construction will begin this year.

“Any expatriate living in the country can own a house in this first project that is built on the sea-reclaimed land off Mawaleh,” said Tourism Minister Ahmed bin Nasser al Mehrzi.

“This project is part of our Oman Tourism Vision 2040 and with this, we aspire to achieve rapid development of tourism in the Sultanate,” the tourism minister added.

Another development, Sur Gate Project, a 146,000 sq. m. integrated complex worth OMR 120 million (US$311.7 million) offers residential apartments and villas alongside a hotel, mall, and leisure centre.

Construction works for Quriyat Project, a OMR385 million (US$1 billion) integrated tourism complex, is expected to begin this year. It will feature more than 3,000 residential units, as well as hotels, a golf course, a water park, cinemas, restaurants, and a health club.

Other ongoing ITC projects in Oman include Diyar Ras Al Hadd Resort with 700 residential units, Omagine Project with 2,000 units, Al Nakheel with 1,436 apartments and villas and Hawana Lagoons Salalah with 260 units.

Positive developments in the real estate market

In early 2018 Real Estate Investment Funds (REIFs) were introduced to the Sultanate by Administrative Decision No 2/2018 which allows residents in Oman, whether citizens or expatriates, to purchase a share in real estate development projects listed on the Muscat Securities Market, similar to the purchase of shares in the stock market.  Funds can own residential complexes with an area of less than 10,000 square meters (sq. m.), but cannot own empty lands or agricultural property.

“The regulation makes investment in such funds easy and less risky besides providing employment opportunities for citizens,” said Abdullah bin Salim al Mukhaini, the secretary-general of Real Estate Register.

Rents continue to fall, amidst an expat visa ban

In 2018, residential rents in Oman fell by around 10% to 15% from a year earlier, amidst a steady decline in the number of white-collar expat employees due to the expatriate visa ban, according to a report released by Al Habib, Oman’s largest real estate solutions provider.

During 2018:

  • Residential rents fell by about 13% in Falaj, Ruwi, Darsait, Muttrah, CBD/MBD, Qurm, Al Khuwayr, Ghubra, and Azaiba.
  • Rents fell by 18% in Bausher, and in Ma’abela/Mawaleh/Al Khoudh.
  • Rents plummeted by 23% in Amerat, Ghala, and Wadi Kabir.

Oman total population

The Ministry of Manpower has decided to extend the temporary visa ban on expats in ten sectors for another six months from June 1, 2019, as part of the government’s efforts to create more jobs for Omanis and reduce unemployment. Foreigners account for almost 90% of all workers in Oman’s private sector, according to the Manpower Ministry. But thousands of expats are now leaving the Sultanate because of the expat visa ban. As of December 2018, the total number of expat employees in Oman was 1,787,447, down 3.6% from a year earlier.

“We forecast a further decline in rents and occupancies as more white collar expatriate employees are replaced by Omanis,” the Al Habib report stated.

“In general, Oman has, among the highest home ownership, in the world. Omanis prefer to live in their own homes, sometimes in extended families, till they are able to buy/build their own houses. It is also common for more than one Omani in a household to be employed while it is less common in expatriate families.”

The expat population rose by more than 12% per annum during the period 2004-2016. In 2018, Oman’s population of about 4.6 million was 56% native Omanis and 44% expatriates, far from the 75:25 ratio of Omanis and expats in 2004.

A less restricted rental market

Rental laws in Oman were last changed by the amended Royal Degree (107/2010). New rules included:

  • The rule that landlords may only increase rent every 3 years was modified. The parties can now agree otherwise.
  • The maximum rent increase of 7% of the annual rent stipulated in the lease contract has been removed.
  • The earliest period that a landlord can terminate a lease for commercial property was trimmed down to 5 years, from the previous 7, and from 4 to 3 years, in the case of residential properties.
  • Landlords can now retrieve expenses incurred in lawsuits related to eviction notices served to non-paying tenants, due to a new legal procedure.

Residential construction falling

Despite the ongoing construction of several ITC projects, overall residential construction activity in Oman is falling. In 2018, the total number of planned land plots for residential construction plummeted by more than 40% to 32,163 units from a year earlier, according to the NCSI. Likewise, residential land plots granted in Oman fell by 3.6% to 30,448 units last year and by 14.4% to just 2,636 units in Muscat.

Of the country’s 11 governorates, Ad Dakhliyah, located in the northern part of Oman, accounted for the largest share in both land plots planned and granted, at 19.1% and 26.1%, respectively.

Oman land plots granted residential

Residential building permits in Oman fell by 24.2% to 24,149 units in 2017 from a year earlier (latest figures available). That’s down from an average of 31,000 units in 2011-16, but up from an annual average of 15,000 units in 2007-10 and 7,000 units in 2002-06.

Oman had 551,058 housing units in 2010, 27.9% up on 2003. Arabic houses comprised 31.2% of the total housing stock; villas, 28.6%; apartments, 20.9%; rural houses, 3.2%; and improvised housing units, 2.4%.

Housing assistance program almost nonexistent

Government housing projects and subsidies for housing loans have been cut substantially in recent years.

Only 115 families benefited from the housing assistance program in 2016, down from 1,982 families in 2015, 3,752 in 2014, and 4,137 in 2013, according to the Ministry of Housing.

Oman housing units granted low income citizens

In fact no financial allocations were approved for the Sultanate’s housing loan program in the past two years, and no housing units were granted to low-income citizens from 2016 to 2018, down from an annual average of 160 units in 2010-15 and 740 units in 2009-14, according to NCSI.

Oil sector still dominates

Oil 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.

Oman oil sector

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.

Booming tourism

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.

Fiscal position improving

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.

Sources:

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