Pre-pandemic property market already depressed
Lalaine C. Delmendo | November 08, 2020
“As Oman pushes ahead with its Omanisation drive, the number of expats leaving the country as a result of visa bans for foreign workers has increased, sending property rents and prices lower,” said Cavendish Maxwell Research.
Residential property prices and rents have been falling by about 10% to 15% annually in the past three years, 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. Earlier this year, the government has decided to extend again the visa ban on expats for another six months from August 5, 2020, and has expanded the coverage to include more job categories.
Foreigners account for almost 90% of all workers in Oman's private sector. The expat population rose by more than 12% per annum during the period 2004-2016 but has continuously declined since the visa ban was introduced. In the first half of 2020, the total number of expat workers in Oman fell by a huge 9.3% y-o-y to 1,589,883, following annual declines of 4.2% in 2019 and 3.6% in 2018.
“We expect to see an on-going decline in the expatriate population living in Muscat and that will result in a reduced market size and therefore reduced demand over the coming months,” said Matthew Wright of Savills Oman.
Real estate trades plunged 24% during the first eight months of 2020, as compared to the same period last year, according to the National Centre for Statistics & Information (NCSI), with the value of properties falling by 7.3% y-o-y.
Oman's real estate market began to be opened to foreigners in 2002, as part of the “Vision 2020” plan to reduce Oman's oil-dependence. GCC nationals were the first foreigners to gain the right to own real estate, then in February 2006 other nationalities, but only in designated Integrated Tourism Complexes (ITCs). Under current laws, expatriate owners automatically get residency rights for themselves and immediate families when they buy property in ITC developments.
The Omani economy grew by a minuscule 0.5% in 2019, a slowdown from the previous year's 1.8% growth – and far lower than the annual average growth rate of 5% from 2012 to 2016, according to the International Monetary Fund (IMF).
The IMF has recently forecast that Oman's economy will contract by 2.8% this year, mainly due to the coronavirus outbreak, as well as the oil price slide.
In August 2020, crude oil prices stood at an average of US$ 44.74 per barrel, sharply up from just US$18.38 in April 2020 but down from last year's US$59.04 per barrel.
Escalating rents in Oman
Rents in Oman have skyrocketed in the recent past, especially in Muscat and other high demand areas. After rising 21.4% in 2008, rents rose 16% in 2009. But by 2010, average rental rates were dropping. The rent hikes in the 2 years before mid-2008 prompted a huge new supply of residential rental properties especially in the capital area, according to Cluttons, much of it of lamentably poor design and quality.
In central areas, rents for two-bedroom apartments in Q1 2011 were around OMR 400 (US$ 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.
Economic slowdown, deteriorating fiscal positionThe Omani economy is expected to contract by 2.8% this year, mainly due to the coronavirus outbreak, as well as the oil price slide, based on the IMF projections. It grew by a minuscule 0.5% in 2019, a slowdown from the previous year’s 1.8% growth and far lower than the annual average growth rate of 5% from 2012 to 2016, according to the International Monetary Fund (IMF).
Oman’s fiscal deficit is projected to surge to about 20% of GDP this year, far higher than the previous year’s 8% shortfall, mainly due to a 32% drop in revenues driven by lower oil prices, according to Fitch Ratings. In addition, government debt is expected to rise to over 80% of GDP this year, from 60% of GDP in 2019.
As a result, major credit ratings agencies have recently cut Oman’s rating deeper into junk.
- In March 2020, Standard & Poor’s lowered Oman’s sovereign ratings deeper into junk territory, with a negative outlook, citing higher external risks and indebtedness.
- In June 2020, Moody’s cut Oman’s sovereign rating for the second time this year, to Ba3 – three levels into its non-investment grade scale – and changed its outlook to negative.
- Fitch Ratings also downgraded the country’s long-term foreign currency issuer default rating from BB to BB- in August 2020, following a downgrade last March. The outlook remains negative.
“The downgrade and negative outlook reflect the continued erosion of Oman's fiscal and external balance sheets, which have accelerated amid low oil prices and the coronavirus shock, despite some progress on underlying fiscal consolidation,” said Fitch Ratings.
In January 11, 2020, Haitham bin Tariq Al Said succeeded to the throne on the death of his cousin, Qaboos Bin Said Al Said. Haitham is expected to continue his predecessor’s economic and social reforms to make the Sultanate less reliant on oil and gas exports for revenue.