Global: Liquidity fuelling mega real estate projects in Oman
Global Investment House –Kuwait- Economic & Strategic Outlook - Real Estate - The recent surge in oil prices and the resulting increase in liquidity, has resulted in mega real estate projects boom throughout the GCC in general and Oman specifically. Other factors contributing to this real estate boom are as follows:
Oman's total population stood at 2.5mn in 2005 increasing by 3.8% from 2.4mn in 2004. Oman has also a young demography; around 66.7% of the Omani total population is below the age of 24, which translates into an increasing demand for housing.
A strong economy and the increase in liquidity has been one of the main drivers of the buoyant real estate sector. With higher yields, property remains one of the best investment avenues in Oman. Last but not the least, the domestic liquidity situation in Oman has been influenced considerably by the developments in the oil front. Higher oil revenues and higher overall surplus in the balance of payments also contributed to excess liquidity conditions in the market.
The expansion in Oman’s economy and the flow of expatriate workers, have boded well for both the commercial and residential segments of the real estate market. The employment of expatriates in the private sector has been increasing in absolute numbers. It stood at 510,713 employees in 2006 compared to 424,788 employees in 2005. Also, demand for high quality commercial space has grown in tandem with improving economic situation creating a shortage of office space, and inducing an increase in commercial rents.
Until recently only GCC nationals were the only foreigners allowed to buy land in Oman according to Royal Decree 21/2004 which extend land ownership rights to GCC national and GCC corporate entities (wholly owned by GCC nationals). However, the Royal decree 12/2006 expanded foreign ownership rights to include non-GCC nationals as well.
The government has been promoting tourism as a catalyst to economic diversification, undertaking lot of measures to revive the sector, starting with the establishment of Ministry of Tourism in 2004. The freehold ownership law which allows foreigners to own real estate in designated integrated tourism-related areas on a freehold basis is another sign of the government's commitment to revive the sector. The government is also granting subsidized land to major developers for tourism projects. This has encouraged the establishment of mega developments such as the Wave, Blue City, Muscat Golf & Country Club, and Yitti.
"The Wave", a US$800mn investment is being established along a beachfront of 7.3 km west of the capital Muscat, is a joint venture comprising Oman’s Waterfront Investments, representing the government of Oman, the National Investment Funds Company, and the UAE’s Majid Al Futtaim Investments. The project is scheduled to be developed in two phases; the first phase of the project will involve reclamation of land, infrastructure development and site improvement, which will include an 18-hole PGA Golf Course and Marina. The second phase will feature the development of hotels, villas, condominium towers and upscale apartment complexes, as well as retail and restaurant outlets.
The US$10bn "Blue City" project in Barka will be developed over several phases in the next 10-15 years. The Blue City will include several hotels and tourism attractions, as well as other developments related to education, healthcare, sports and marine sectors. The Blue City is anticipated to become home to more than 200,000 people.
Another agreement was signed recently between the government and Dubai International Real Estates Co. to set up an integrated tourism project in Yitti in the governorate of Muscat. The project with its various components represents a complete tourism project to be set over a 2.6mn sq/m area. It will include a beach hotel, a health resort and a mountain resort, a golf ground, yacht harbor, residential villas and tourism utilities.
"Muscat Golf & Country Club" is a five-star leisure and residential destination. The international construction giant, Laing O'Rourke, is the project leader, and is overseeing the total project construction and the course preparation. Endorsed by the Ministry of Tourism, Muscat Golf and Country club includes two bedroom apartments, three bedroom penthouses and the three, four and five bedroom villas, the gulf course, clubhouse as well as the exclusive five star hotel, spa and shopping facilities. The site is close to Seeb International Airport, allowing easy access to international travelers. The project is expected to be completed by 2009.
The real estate in Oman is continuing its strong growth. The latest available data from the ministry of national economy indicate that the total number of total plots have increased from 35,414 in 2004 to 71,263 in 2005, an whopping increase of 101%. The residential sector still captured the biggest share, registering 83.2% of the total number of plots in 2005, and the capital city "Muscat" having around 42% of the total plots in 2005.
The outlook for the Omani real estate market is very promising with healthy macroeconomic environment, and most importantly, steady progress towards economic diversification. High oil prices provided significant boost to the economy which has been boosted by higher liquidity levels. Being the most politically stable country in the region is another big plus for Oman. This gives it the potential to attract foreign investments.
The Royal Decree allowing foreigners' freehold ownership in tourism designated areas is expected to be another significant driver of the real estate sector in Oman. With the Royal Decree, the future for big projects like the Wave, Blue City, Yitti and the Muscat Golf and Country Club looks bright as the demand for property is expected to go up.
Another big plus for the Omani real estate market is that despite the upsurge in property prices, Oman still remains a competitive market in terms of prices as compared to other GCC countries. Omani land is cheaper than the other GCC countries. Land prices in Oman is estimated to be roughly 50% less than that in Dubai, and 35% less than Bahrain. This gives the country an advantage in attracting investments from other appreciating GCC countries.
We expect the demand for industrial space to pick up as the government continues to open up for foreign investments, which will in turn create demand for the residential sector coming from the inflow of expatriates. The government has been trying to position the Sohar Port as an industrial hub. The port is undergoing a huge transformation with around US$12bn worth of developments in the pipeline. The government has been very supportive to new developments, giving out land to big developers under long term leases at very low annual rental rates of RO0.75/sqm. Five major projects have been already announced namely Sohar Refinery Project, Sohar Methanol Project, Oman-India Fertilizer Project, Ferro-Chrome Project, and Sohar Fertilizer Project. Of these, work has already progressed in respect of Sohar Refinery Project and the Oman-India Fertilizer Project. We anticipate continued activity in the industrial sector in tandem with the government's commitment to its long term target of diversifying away from the oil sector.
Supported by a growing economy, favorable government measures regarding foreign investments, and foreign ownership laws, the real estate market in Oman has changed rapidly over the last year, and is expected to gain further momentum in the short to medium term. While the retail segment is not very promising, a young demography, flourishing business environment and an influx of expatriates will bode well for the residential and commercial sectors. Further, with the government's commitment to its diversification plan, and mega projects underway, the industrial and tourism sectors are likely to be other winners in the Omani real estate sector.