The Sultanate’s property sales market appears least affected by market sentiment and offers good investment opportunities for domestic and foreign buyers. Oommen John P reports on the investment opportunities in Oman’s real estate sector
Real estate has over the years become an attractive investment option and a common investment vehicle. It still gives better returns than bonds or deposits. Given the nature of the economics of the business, real estate goes through ups and downs. When the returns are high, people start building and it takes a few years for them to be completed by which time there could be excess supply. When returns are low, people stop building and supply goes down and you have rents going up. In Oman, real estate prices are tied to oil prices and oil prices by their very nature tend to go through ups and downs. Either one rides the ups and downs or invests in a contrarian way, says M Sudhakar Reddy, CEO, Al Habib, one of the largest real estate companies in Oman.
Looking at Oman’s demographics and population growth, real estate remains as a viable investment option for both Omanis and expatriates. This coupled with the continuous focus by the government on diversification and the development of infrastructure and tourism, will continue to push the growth of the real estate sector, says Hisham Moussa, CEO of ALARGAN Towel Investment in Oman. Location is the most important thing. Some of the old locations are no longer popular. Some of the new locations have good capital appreciation prospects. The quality of the property is also important. Unfortunately, people look at immediate yields and make poor buying decisions. Buyers must look at long term yields and these will depend on quality and location. Car park is a neglected aspect. Buyers must make sure there is adequate car park. When the market goes through a downturn, adequate car park can give an edge in keeping units rented, says Reddy.
Growing interest in ITCs
According to Q2 2016 report of Savills World Research-Middle East with a focus on Oman, the number of nationals buying property within the ITCs remains high at a period when foreign buyers are acting with more caution. Solid rental returns and prospects of capital gain are still primary purchase factors but more and more nationals are taking up actual occupancy at these developments, having identified the benefits such gated communities offer. There are likely to be a number of new project releases at Al Argan Towell’s Barka development and Muriya’s Jebel Sifa over the year, offering resort style property options. However, those projects with the commercial inertia enjoyed by the likes of Al Mouj and Muscat Hills will likely remain the highest performing in terms of capital gain moving forward.
The year continues to see high levels of buyer interest, particularly in the ‘off plan’ apartment developments. There appears to be no shortage of bank liquidity and thus availability of mortgages remains available and accessible for such investment purchases. There remain few commercially attractive alternative means of domestic investment for the local market and as such property remains a firm favourite, showing typically a 7 per cent initial yield upon completion. The emergence of commercial space for sale is a relatively new phenomenon and a number of developments have entered the market since year commencement. Whilst this is a relatively new investment sector for Oman and offers in general less returns than residential, it is a welcome addition to a fast evolving property industry.
Al Mouj Muscat is attracting young families to retirees, as well as capital funds looking for a safe and low risk investment haven with a track record of delivering good returns and yields, says Nasser Al Sheibani, acting CEO of Al Mouj Muscat. In fact, we are seeing increasing numbers of buyers of all nationalities seeking a principle residence in Al Mouj Muscat, motivated by the Sultanate’s stability and security, by the opening up of the economy, and the good business environment. From our side, our confidence in the future is clearly seen in our ambitious plans. For 2016 and beyond we have a range of diverse products set to enter the market. These include new luxury properties, education and entertainment zones, hotels and additional commercial options. We recently signed a large contract with Al Turki to deliver The Gardens and Marsa Gardens. Things are not slowing down for us, he adds.
What should investors look for? The income generating real estate enables investors to capitalise on a recurring income in the ballpark of 7 per cent to 10 per cent annually. Alternatively, investors may opt for off-plan properties under development, and expect 10 per cent to 15 per cent appreciation upon project handover. Nonetheless, this option is associated with a higher risk in terms of liquidity and handover delays, therefore decisions must be based on proper market studies and qualitative selection of opportunities, explains Hisham. Of course a prospective investor should consider yields and capital growth and someone looking for a home should prioritise lifestyle. Regardless of the motivation for the purchase, I always advise buyers to look for a project with a future, one that’s in a good location with a range of amenities either on the project itself or nearby. These factors add value and make a property a desirable place to live and a good home, Nasser avers.
Better than gold?
Is real estate a better option than gold and other investments? Yes, it is much better than gold or bonds/deposits. However, savvy investors do their asset allocation well and stay invested in different asset classes. Real estate must be a part of any investor’s assets, Reddy avers. Real estate is a better option than gold because it is a natural hedge against inflation, a productive yielding asset, and it is not prone to the extreme fluctuation like gold prices that are driven by speculation in the commodities markets, says Hisham.
Buying real estate has never been a bad option, and the demand for quality properties at the right price will always be there. “I would say the key difference in investing in gold is that the only way it will make money is through increase in price, while investing in real estate will provide a constant cash flow from renting the properties as well as capital appreciation”, says Nasser.
As disposable income of households is declining in general, the real estate sector may also be affected in the near to mid-term. There is a general over supply in the market but it is yet to have a significant downward effect on prices. Yet there are positive signs with the expected global economic recovery, and the governmental efforts to stimulate the market by regulatory reforms to attract more FDIs, Hisham adds.