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| 19 June, 2018

Oman's real estate sector shows signs of recovery

Opening REITS to raise liquidity

Neat curve of road with lamp posts and central petunia garden along the Muscat Corniche (esplanade) in Oman.

Neat curve of road with lamp posts and central petunia garden along the Muscat Corniche (esplanade) in Oman.

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Rising transaction levels and stabilising rents suggest that Oman’s real estate sector could be in recovery, with future prospects bolstered by moves to facilitate property investment.

The value of property transactions increased by 4.2% year-on-year in January-April, reaching OR1.01bn ($2.6bn), according to the National Centre for Statistics and Information.

Rents, a sector bellwether, have also entered a period of relative calm. After dropping 20-25% over the past three years, the first quarter of 2018 saw a marginal dip of just 1.1%, suggesting the market could be nearing the bottom of the cycle and was primed for a return to growth in 2019, according to the Muscat Property Market Outlook, Spring 2018, from international property consultant Cluttons.

The report said that if the sultanate’s wider economic recovery can be sustained the effects are likely to continue to feed into the property market. The IMF is projecting GDP to grow by around 3.9% in 2018 and 2019 on the back of higher oil prices and strong prospects for key non-oil sectors of the economy, such as tourism.

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Opening REITS to raise liquidity

To tap into rising incomes and encourage fresh investment on the back of improving economic conditions, in January 2018 the government introduced regulations for real estate investment trusts (REITs).

By allowing more individual investors to invest in property at low entry price points, REITS can increase liquidity in the market, prompting further development.

Though some analysts expected an initial REIT to come to the market as early as April, as of June none had been introduced. According to Hassan Juma Al Lawati, vice-chairman of the Oman Real Estate Association, the minimum size of REITs, set at OR10m ($26m) paid-up capital, could be too large for the market. A threshold of OR5m-7m ($13m-18m) may be more appropriate, he told local press.

Alongside setting capital requirements, the regulations also mandate a REIT be run by an investment manager licensed by the Capital Market Authority, to distribute 90% of its net annual profits to shareholders and to offer at least 40% of its equity to the public.

Uniquely in the region, Oman’s regulations permit 100% foreign ownership of REITs, as opposed to a 49% cap set in Saudi Arabia, Bahrain and the UAE, the other GCC jurisdictions that have established REIT regulations.

Hospitality real estate continues to outperform rest of sector

By allowing full foreign ownership of REITS, the authorities are building on a successful move in 2006 to allow international investors to own property in integrated tourism complexes (ITCs).

Popular with expatriates because of the range of amenities on site – including retail and entertainment options, as well as high-quality housing – and the added incentive of an automatic residency visa, ITCs ensured robust growth in hospitality real estate even during the economic downturn.

“One of the key features of an ITC is that non-Omani nationals can buy residential properties as a primary residence or a holiday house, which has encouraged a significant amount of new foreign direct investment into Oman,” Peter Walichnowski, CEO of the Oman Tourism Development Company, known as Omran, told OBG. “This has encouraged developers to provide more leisure and recreational facilities such as golf courses, marinas and beach clubs.”

The government’s target of attracting 21m tourists by 2035, up from 8m in 2015, as part of efforts to diversify the economy mean that prospects for the segment continue to be strong, with developers breaking ground or nearing completion of several new projects within the last six months.

For example, in January 2018 works began on a $1bn ITC development, which will bring residential, hospitality and recreational facilities to the eastern coastal village of Quriyat. Then, in May, local developer Barr al Jissah opened sales within its Al Mina Waterfront Residences project. Scheduled for completion in 2020, the ITC is the first in Oman to include homes with remote-controlled smart appliances and an app-based concierge service.

New visa regulations pose risk to real estate demand

However, continued strong demand from foreign residents is less certain.

While a move by the government in late May to extend a temporary ban on foreign work permits in specific sectors is not likely to heavily impact demand from high-end segments like ITCs, it does pose a significant risk to the recovery of the wider residential market.

According to local media reports, when the ban was first implemented in January many property owners and landlords in Muscat immediately began to reduce prices.

© Oxford Business Group 2018