Recovery gaining pace

The single biggest factor driving the real estate market is Oman’s broader economic performance.

After a slowdown following the global economic crisis in 2008, and another dip in 2011-12, the Omani real estate sector has been picking up pace as confidence returns. Sound economic and demographic fundamentals help support the market, with Oman’s wave of big-ticket investments from the private and public sector underpinning medium- to long-term optimism. As the upswing in Oman’s real estate market gathers momentum, it is worth looking at which segments are proving particularly promising.

Some types of property are attracting particular attention – high-end residential, grade-A office space, logistics developments and integrated tourism complexes (ITCs) among them. Oman’s banks, flush with liquidity, are keen to lend to developers and purchasers alike to take advantage of growth. Opportunities thus exist for smart investors in a range of areas. But developers will be wary of some of the mistakes made in recent years, which have seen some projects suffer due to poor planning – buildings located in undesirable or hard-to-reach locations, or without the necessary supporting infrastructure. Rising supply in some segments will also restrain value and rent growth, while downside risks from the international economy also need to be taken into account.

The single biggest factor driving the real estate market is Oman’s broader economic performance. The Central Bank of Oman (CBO) forecasts GDP growth of 3.4 per cent in both 2014 and 2015. While this may not be as high as the rates achieved in the 2000s, it represents steady and healthy expansion. Oman’s inflation rate, at less than 1 per cent in the year to July, is one of the lowest in the region and another indicator of the country’s stability.

There are strong grounds for optimism about the future; both the government and the private sector are lining up large investments that should both boost growth in the short and medium term and lay the foundations for continued expansion and greater diversification in the longer run. Projects like the Sohar Port and Freezone, Duqm SEZ, the Oman Railway project and BP’s $16bn tight gas development are all seeing billions of dollars of public and international money invested.

Oman’s growth is delivering higher incomes – as are generous public sector pay increases – increasing the amount that Omanis and expatriates can spend on property investment and rent. The big-ticket investment projects, apart from supporting broader growth, are also likely to drive demand for residential property to house expatriates coming to work on them, as well as office space for the companies delivering and servicing the developments.

Demand is additionally being driven by Oman’s growing population, which is rising by 2.5-3.5 per cent a year, according to local press reports. And another factor is growing confidence in the region as a whole. Real estate experts disagree on the extent to which Muscat’s property market is linked to that of Dubai. Some suggest that, if Dubai sneezes, Muscat catches a cold, while others feel that Oman’s market is not so closely coupled to that of its northern neighbour, which of course has a very different economy, a far higher proportion of expatriates, and a different international image and tourist proposition. Nonetheless, investor confidence in the Gulf more broadly can benefit Oman, different though it may be from the other GCC member states. Despite the geopolitical difficulties in the north of the Middle East, there is a strong sense that the Gulf is on a positive growth path, and one that is more sustainable than that which existed prior to the economic crisis.

With these factors in mind, which segments of the market are investors targeting? Residential rents on average are rising steadily, with two- and three-bedroom apartments seeing a 2.3 per cent increase in the year to the end of the third quarter of this year, and villas rising 4.8 per cent, according to Clutton’s.

The real estate company reports that rents have risen particularly rapidly in Azaiba, located between Old Muscat and the areas in the west of the city that are a focus of new development. Azaiba benefits both from this location and relative affordability, with a two-bedroom apartment renting for RO550. But new supply in the area has been limited.

Integrated Tourism Complexes

Clutton’s says that it is seeing rising interest in gated communities, particularly from expatriates. At present, these are mostly found in integrated tourism complexes (ITCs) that have been a focus for investment both by expatriates and by Omanis, whether for owner-occupation or buy-to-let. Attention is turning to the Saraya Bandar Jissah ITC, which offered its first units on the market in September to a positive response. The development will have 398 luxury residential units, due to be completed in two phases, by 2017 and 2020, as well as two hotels operated by the Jumeirah Group.

Despite these new units, Clutton’s says that there is a limited villa pipeline in the Sultanate, and with investments continuing to create jobs for Omanis and expatriates alike, it expects rental values to continue to rise.

While Saraya Bandar Jissah comes on the market, existing ITCs are also moving to enhance their offerings. At The Wave, still seen by many as Muscat’s flagship ITC, the opening of the Al Marsa Village Retail Centre recently, and the anticipated openings of a five-star Kempinski next year and a four-star hotel operated by Dubai-based Shaza Hotels in 2017 will further strengthen the appeal of the development to residents and tourists alike. Clutton’s thus expects further increases in capital values.

Muscat Hills, another ITC, should also see values rise as the facilities it offers develop. The project saw a surge in prices as the sector picked up in late 2012 and early 2013, with Omanis in particular keen investors.

For ITCs, expatriates from South Asia will be a key market, seeking properties around RO100,000, with Oman’s relative affordability and the offer of a residential visa with property investment significant upsides.

One of the interesting features of ITCs is that they have initially attracted more investment as residential developments than as short-term lets to tourists. This shows that these complexes, with their range of leisure and retail amenities, are attractive places to live. But some forthcoming developments may tilt more towards the tourism market, which is growing steadily.

Tourism Strategy

There is some polite disagreement about Oman’s tourism strategy. Some advocating a more mass-market approach to ensure that the Sultanate hits its ambitious target of visitor numbers and fills more hotel rooms, while others feel that an intensification of the current high-value approach, and a more modest goal in terms of visitor volumes, is preferable.

But in any case, visitor numbers are rising steadily, both from business and leisure tourists, and major international investors (including hotel chains) are confident enough of the outlook to put millions – even billions – of dollars into the Sultanate.

On October 8, US-based, Oman-focused company Omagine announced that it had signed a long-anticipated deal with the Sultanate’s government for the development of the $2.5bn Omagine real estate development, which will incorporate more than 2000 residential units as well as hotels, and commercial, retail and leisure space. The big-money deal confirms the continued appeal of Oman’s property market to international investors, and is backed by the Sultan’s Royal Court Affairs, which has a 25 per cent stake.

In the commercial segment, Clutton’s reports that rents for office space have generally held steady. Yet there is an emerging trend for grade B and C offices to see rents fall, while Grade A moves upwards. There is still a shortage of top-end office space in Muscat, and only a limited pipeline. Property industry insiders tell OBG that the period around 2011 saw considerable amounts of mid-range office supply come onto the market, but some of it poorly-conceived and managed. This partly explains the downward rental trend. But, with investors and contractors moving into Oman, or expanding here, as major projects take off, demand for better space is likely to remain robust. The better developers are aware that these clients demand more – sufficient parking space, good catering and retail outlets on site or nearby, and an accessible location, as well as a high level of service.

In retailing, outlets catering to low- and middle-income residents are growing particularly strongly. “Value chains”, hypermarkets and high-street shops are expanding, and Dutch retailer SPAR is due to enter the market with nine supermarkets by 2016. Outlets like this benefit from rising wages for Omanis in the public and private sector, so it is not surprising that they have received a boost in recent years. Oman’s tradition of high street retailing has proved more robust than that of other parts of the Gulf, and rents can be as high as those at the top-end malls.

While coverage of the real estate sector tends to focus on high-profile developments such as ITCs and malls, some of the most interesting opportunities exist in the industrial and logistics segments. The growing Sohar and Duqm ports and industrial zones show particular potential. Intended to be centres for manufacturing and transportation, they will be central to economic diversification efforts for years to come.

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