Market Analysis: Oman in Perspective
Cavendish Maxwell’s Manika Dhama on Oman and the country’s residential, office and retail real estate sectors
The continuing recovery of oil prices, along with the introduction of natural gas production at the Khazzan gas field and the completion of the new Muscat International Airport are some of the factors that are expected to improve confidence and encourage private sector investment in Oman, thus bolstering GDP growth. This is likely to boost the real estate sector’s performance in the country.
Despite economic slowdown over the last two to three years, the contribution of the real estate sector to the Oman economy continued to increase from 3.9% of GDP in 2014 to 5.2% in 2016. However, 2017 proved to be a challenging year for the sector, as rents and price across all segments of the market, including residential, commercial and retail, declined against weakening demand.
The latest figures released by the Ministry of Housing, Oman indicate that the total value of property traded in the country during 2017 amounted to $6.7bn, down around 61% compared with 2016. Mortgage contracts registered the steepest decline from 2016 at 74%, to $3.6bn in 2017.
To boost investment in the Oman real estate sector, the Capital Market Authority (CMA) of Oman issued the regulatory framework for introduction and trading of real estate investment trusts (REITs) on the Muscat Securities Market in January 2017. The regulation opened the market to all Omani residents, including expats, allowing them to purchase a part of a real estate development in the Muscat Securities Market. This is expected to further boost real estate market activity.
Tourism Overview: Oman
Oman is focusing on its tourism industry as a driver of economic growth. Since the launch of the 2040 Tourism Strategy of Oman, the contribution of tourism to the sultanate’s GDP increased to 2.8% in 2016, with year-on-year inbound tourists increasing to 3.3m by December 2017, according to the National Centre for Statistics and Information (NCSI). Government initiatives are focused on boosting the sector’s contribution to GDP to 6-10% in 20 years, while creating more than 500,000 jobs through investment of $51.9bn.
One of the key initiatives to boost the sector’s contribution is the launch of e-visa services in July 2017, to enhance efficiency of the arrival process in Oman and the overall arrival experience. Further, it continues to promote Integrated Tourism Complexes (ITCs), freehold areas that offer residence visas for those who buy properties in the country.
The upcoming new international airport in Muscat, expected to open later in 2018, is also likely to boost incoming tourism numbers to 21m by 2035, up from 8m at the end of 2015, an annual growth rate of more than 5%, according to International Air Travel Association (IATA).
Integrated Tourism Complex (ITC) Developments
As a part of its move to reduce the country’s reliance on oil and diversify the economy, the government of Oman has opened the real estate sector to investment from expatriates in Integrated Tourism Complexes (ITCs). These are freehold mixed-use developments featuring different asset classes including residential, hospitality, retail, leisure and offices. Expatriates constitute 45% of the total population as of December 2017 and have historically had limited exposure to the property market.
The government is developing more than 5,000 homes in collaboration with private developers in five ITC projects: Diyar Ras Al Hadd Resort, Omagine Project, Quriyat Integrated Project, Naseem Al Sabaah Project and Al Nakheel Project.
Residential Rents and Office Market Overview
A continuous decline in rents has put tenants in a stronger position to negotiate terms with owners, who in turn are offering better rents and flexible lease terms. Landlords have also been offering three- and six-month advance payments, as opposed to annual payments, to reduce vacancy risk on the property. Furthermore, housing demand is shifting towards more affordable housing, causing a stronger rental decline in the premium locations. Tenants are migrating and showing a preference towards larger communities with a broader array of existing infrastructure and amenities offered at affordable value.
Rents are expected to fall further due to the government’s move for Omanisation through the imposition of a new expatriate law causing a six-month ban on expat visa issuance in 87 occupations, as well as residential project oversupply from previous years.
Mixed-use developments are expected to lead demand for offices; however, job cuts due to the economic slowdown have continued to put pressure on the office real estate market. Rents continue to decline, especially in central business districts (CBDs). Tenants are becoming more sensitive to the location and quality of the property they rent, the amenities offered at the property and the price they are paying, giving rise to the development of new CBDs. Landlords responding proactively to market conditions by offering competitive rents for high-quality properties are witnessing quicker absorption and higher occupancy levels.
The performance of the office market is expected to be largely driven by a combined effect of economic diversification and development of sectors other than oil & gas, as well as accessibility and amenities such as parking facilities being offered.
Mixed-used developments featuring a combination of residential, office and retail developments are further likely to underpin the performance of the country’s real estate sector, as they offer competitive prospects to both developers and tenants. These master developments have started to attract an increasing number of tenants by offering better quality of life, reduced commute times to work and accessible retail outlets.
Retail Market Overview
The retail market is in transition, due to the changing shopping preferences and habits of consumers. Despite weaker consumer sentiment and declining retail sales due to poor market conditions, a significant amount of retail space is being added to the existing stock in the country, mainly in the capital. The retail landscape of the country is gradually shifting towards larger format malls from stand-alone retail outlets, owing to changing shopping preferences. Consumers now look forward to a holistic shopping experience combined with leisure and entertainment.
In 2018, two new malls from Landmark Group branded Oasis Malls, in Sohar (33,000sqm) and Salalah (35,000sqm), as well as Majid Al Futtaim’s My City Centre Sur and City Centre Sohar, among others, are expected to be added to the supply.
