REAL VALUE RECOVERED

Oman 2014 | REAL ESTATE & CONSTRUCTION | REVIEW: REAL ESTATE

Oman's real estate sector has rapidly made up for lost ground following the 2008 market correction, and is set to continue growing.

According to data released by the Ministry of Housing, 120,081 real estate transactions worth a total value of OMR1.72 billion ($4.4 billion) were concluded in Oman in 2012, which represented a 45% increase compared to the previous year. The number of property owners from fellow GCC countries in 2012 amounted to 3,376.

The market slowed down slightly in the first five months of 2013, as the total value of traded properties amounted to OMR680.6 million ($1.76 billion), a decline of 15.7% compared to the same period in 2012. Still, the traded value of sales contracts rose by 10.5% to OMR274.9 million ($714 million), whereas the number of sales contracts decreased to 30,678 from 32,656.

“I think the market has been making up for lost time," said Christopher Steel, Managing Partner of Savills Oman. “However, it is likely to return to normal growth, which is about 6%-10% per annum. In the first few years after the collapse [of 2008], we saw negligible growth. So, the greater increases in recent years have made up for the lack of growth over that period."

One of the main market drivers, according to property consultants Cluttons, is the government's continuous spending on major development and infrastructure schemes, such as the $15.6 billion National Railway Project and several airport expansions. Furthermore, Oman's eight Five-Year Development Plan (2011-15) calls for national housing projects worth some $1.16 billion.

Demographically, Oman has some 3.2 million inhabitants, of whom 30% are under 15 years of age, while only 3.9% is older than 55. Some three-quarters of the population live in urban areas. In 2010, Oman's housing stock amounted to 551,058 units, compared to 430,996 units in 2003. Most concerned Arabic houses (31.2%), followed by villas (28.6%), apartments (20.9%), rural houses (3.2%), and improvised units (2.4%).

INTEGRATED TOURIST COMPLEXES

In 2006, a Royal Decree was passed to allow non-GCC residents freehold ownership in dedicated zones known as Integrated Tourist Complexes (ITCs). Following several challenging years due to the 2008 financial crisis, Oman's 13 ITCs are increasingly in demand. Most projects are located in and around Muscat, while a handful are now being constructed in the southern tourist hub of Salalah and near the northern border.

In October 2013, Saraya Bandar Jissah reported it had completed earth works and was about to launch a tender for infrastructural works. Situated in Muscat, the project will, among other elements, consist of two luxury beachfront hotels and some 400 residential units. “By 2017, we will open both hotels along with the first phase of the residential properties," Saraya Bandar Jissah's CEO Sheikh Hamood Sultan Al Hosni told TBY. “We have tendered out the first hotel package, and are in the advanced design stages of the second hotel."

First conceived in 2004, The Wave is Oman's oldest ITC under construction. Spread along the Muscat shore, the mixed-use development comprises luxury residential properties, a 400-berth marina, restaurants, retail, and an 18-hole golf course. “Many people mistake projects like The Wave as being purely residential projects," said CEO Michael Lenarduzzi. “On the contrary, it is about delivering tourism infrastructure, diversifying the economy, and providing jobs. The residential side is a crucial element, providing the cash flow to be able to fund the tourism infrastructure, but not an end in itself. This is a very good model to attain tourism infrastructure at minimal cost to the taxpayer. It is a self-sustaining."

Prices at The Wave vary. The twin and detached villas that came onto the market in 2012, for example, ranged between $500,000 and $900,000. As a comparison, four-bedroom villas at The Muscat Hills, which reported a 25% sales hike in 1Q2013, varied between $700,000 and $1.2 million. Two bedroom apartments in both projects start at a price of some $300,000.

“Some 50% to 60% of our sales are to Omanis," said Lenarduzzi. “The rest goes to internationals, particularly long-term expatriate Indians who regard Oman as their home. We also have a lot of people from the oil and gas industry, particularly from the UK and the Netherlands. They have been here for a long time and see this is their home."

COMMERCIAL & RETAIL

The Kuwait-based Global Investment House (GIH), by the end of 2012, warned that the upcoming supply of office space could lead to a situation of oversupply in the years to come and put further pressure on rental rates. GIH estimated that the average monthly office rent in the area of Shatti Al Qurm in 2012 had already decreased by 20% to some OMR8 per sqm. It estimated that average rent in the Al Khuwair and Ghubra areas of Muscat amounted to OMR6 and OMR7 per sqm, respectively.

An estimated 45% of office space released in the first six months of 2013 remained vacant. However, according to Savill's Christopher Steel, the suggestion of oversupply was misleading. “The vast majority of the oversupply is not leasable, because it was not built with sufficient car parking space," he said. “Car parking is the most important factor for companies here. The average office building has a car parking ratio of one space per 150 sqm, while the international norm is one space per 45 sqm. These places are included in the oversupply statistics, but in reality they will never be let."

Finally, Oman's improving economy has acted as a catalyst for new retail developments in the country. According to the National Center for Statistics and Information, the retail sector in Oman registered a 13.5% increase in 2012, compared to a 10.8% rise in 2011. The sector is expected to grow at a compound annual growth rate (CAGR) of around 29% between 2011 and 2014. In this regard, the government's decision to increase the minimum wage by over 60% to OMR325 ($844) per month should not be overlooked.

There are dozens of malls and shopping centers in Muscat. Some of the latest developments include the Muscat Grand Mall, which opened in mid-2012 and redefined the capital's retail landscape. Less than a year later, a major extension was announced, which will bring the total number of stores and food and beverage outlets to some 300.

Nearby, the Panorama Mall, which is part of a much larger mixed-use tower complex, is nearly completed, while the Boushar Mall will be a high-end mall built around the existing Lulu Hypermarket. Finally, The Wave is set to open its on-site mall by June 2014. It consists of nearly 11,000 sqm of retail space. By late 2013, some 60% of the shopping center had been pre-leased.