Lower-quality properties have been struggling into 2016, while the higher end continues to forge ahead
While some of Oman’s current residential, retail and office property stock is struggling to get off agents’ books, at the higher end of the market, the picture is a lot sunnier. In this, the Sultanate resembles many other countries hit by global economic headwinds, in that the old adage “quality sells” remains true.
Now, real estate agents and developers are calling for a broadening out of that high-end niche to provide options for other demographics – and in the process, boost both national income and opportunities for overseas investors.
Yet, there are still a number of regulatory and other barriers that have to be tackled, if this potentially promising move is to be fruitful.
Last year saw a major increase in activity in the Sultanate’s real estate sector, with figures from the National Centre for Statistical Information (NCSI) showing a 43.7 per cent rise year-on-year in the value of property traded. The traded value of mortgage contracts also jumped – by 61.7 per cent – to a record RO2.76bn.
Yet a closer look at these numbers shows that while values may have increased, the actual numbers of deals shrank. Indeed, the number of selling contracts in the NCSI figures fell 1.1 per cent – down to 79,613 contracts from 80,470 in 2014. Likewise, the number of mortgage contracts rose by 17.3 per cent – a much slower rate than their total traded value. In other words, sales of higher-value property increased, obscuring slower sales of mid- and lower-end units.
Agents who spoke to OBG have confirmed that lower-quality properties have been struggling into 2016, while the higher end continues to forge ahead. Last year was also a tale of two halves.
“The first half of 2015 was extremely strong; the second half was very slow,” said Benjamin Cullum, general manager of Hampton’s International & Partners in Muscat. “Small apartment buildings, especially those that are not too nice, have been hit especially hard.” Yet, “there is still a strong market for the right stuff.”
One kind of “right stuff” is the Integrated Tourism Complex (ITC). These have come a long way since they were established by a Royal Decree in 2006. Outside these zones, foreign ownership of property in Oman is restricted, but within the ITCs, luxury villas and apartments are for sale freehold, with residence permits included in the purchase for the buyer’s spouse and children.
The ITCs are all located in highly attractive areas, on the coast or in the mountains, with the idea that they will provide vacation homes for many, as well as more permanent homes for well-off expatriates based in Oman – or even in neighbouring countries. They are also an attractive proposition for higher-income locals. Owners of units in the ITCs have the right to resale and to pass on the property to their descendants.
Bonus for investors
As part of the tourism sector, the complexes also carry special bonuses for investors. A five-year income tax exemption is one, with this potentially extendable for a further five years. Land, as well as built units, may also be purchased within the ITCs, once permission from the Ministry of Tourism has been obtained. There is also no capital gains tax in Oman, adding to the attraction. A further enticement is that the government has exempted purchasers of ITC units from paying a registration fee, if they buy their property straight from the developers.
The ITCs have thus been holding up well in terms of sales, despite the recent belt tightening across the economy, following the global downturn in oil and gas prices. Some 13 of these complexes are currently in operation, from the Muscat Hills Golf and Country Club to Salalah Beach.
A report by Savills for fourth-quarter 2015 showed resale values for Muscat Hills and Al Mouj Muscat (formerly known as The Wave, the first ITC to be established in the Sultanate), rising six per cent year-on-year. The quarter also saw Al Mouj launch Juman One, a premium marina-front apartment complex, while Muscat Hills saw 270 luxury apartments under construction at The Links.
The high-end is not entirely confined to the ITCs, either. Since 2002, GCC nationals have been allowed to buy property in Oman while local higher-income Omanis have also become major clients for higher-quality property.
According to Savills, increasingly, it is younger, well-educated Omanis who make up most of the latter group. In recent times, these buyers have shown an increasing interest in off-plan sales of apartment developments in central Muscat, with Savills’ data suggesting some 75 per cent of all central area developments go to these buyers.
There is also increasing interest and discussion in the sector about the potential future impact of increased sales to Iranian customers. With the potential ending of international sanctions against Iran, many GCC economies are likely to benefit, but Oman has long had particularly good links with Tehran. There is therefore an expectation that if Iranians start to move into overseas property purchases, the Sultanate could be a primary beneficiary.
“Oman stuck by Iran during the difficult times,” says Cullum, “which will mean that Oman should stand to profit handsomely.”
Yet, despite these positives, there are several areas in which the Sultanate’s real estate sector could still do more.
One area many in the sector note as worthy of improvement is in the degree of transparency over transactions – and thereby over the general health and price levels of the market.
This issue has been compounded by the recent increases in taxes on sales, from three to five per cent, along with hikes in taxes on leases. These have in some cases likely acted as an incentive for reporting of transaction values at lower levels than have actually occurred.
The government itself clearly recognises this issue, too. The Ministry of Housing thus recently announced that it was taking steps to ensure the registration of actual values whenever a sale occurred, a step aimed at eliminating this practice. Real estate authentication officers at the Ministry will henceforth take a more active role in establishing true market values – an essential step not only in ensuring the government receives the taxes it is due, but also in producing accurate data for the sector in general.
Another boost for sales in these ITCs would likely come from a smoothing out of the residency application process, according to Hatim Ali, CEO of property management company The Wave Homes.
He recently told the Times of Oman that a lack of clarity at various government authorities was hampering confidence in the buying process. Foreigners making significant investments “want to see a clear framework of buying, responsibilities and obligations”, he said.
A related note is that ITC unit buyers gain a “property owner” stamp in their ID cards, while in other GCC countries, foreign property buyers get an “investor” stamp. The latter categorisation is much more useful when it comes to obtaining visas and other documents for travelling around the region.
Another area in which some see room for improvement is in broadening the ITCs to other income groups.
The Savills’ fourth-quarter 2015 figures for Al Mouj and Muscat Hills show resale prices of $251,755 for a one-bedroom apartment and $1.58mn for a five-bedroom villa, while Savills’ website sells five-bedroom oceanfront villas for RO1.5mn, or around $4mn. While high-quality properties, these are well beyond the reach of the majority of expatriates living and working in the Sultanate. The ITCs are also usually located some distance from schools and other public facilities, in particularly beautiful, but out-of-town places. This narrows their appeal to certain demographics.
So, if ITCs could be established that catered to less well-healed, younger families, closer to places of work and public facilities, they might be able to replicate their success at the high end with a larger potential base of customers.
As Savills’ Christopher Steel recently told OBG, “Until now, most ITCs have been directed only towards the very upper echelons of society. It would be smart to diversify and have more affordable options, which would open up the market just enough for more people to get in.”
With the recent turmoil in oil prices giving the whole region extra impetus to diversify their incomes, however – and with real estate and tourism leading the charge in many neighbouring countries – gaining a share of foreign investment in these areas may require a more tailored approach. Oman’s unique profile as a place to live and visit is already a huge draw; making it an affordable option for more may also offer a way through the current storm.