The healthy macro-economic environment in 2005 has spilled its effects over all the activities in Oman including real estate. The total plots distributed have increased from 11,925 plots in 2003 to 35,359 plots in 2004, with the residential sector capturing the biggest share of the boom, registering 85.7% of the total number of plots distributed in 2004. Again, most of the real estate activity was concentrated in the capital city "Muscat" representing around 38% of total plots distributed in 2004.
Key drivers of the Omani real estate sector includes growing population, young demography, an inflow of expatriates labor, interest rates, liquidity, financing options, construction costs, and foreign ownership legislation. We believe that the foreign ownership law will be a significant driver of the demand for real estate in the future. A Royal decree 12/2006 was announced recently, which expands foreign ownership rights which were formerly restricted to GCC nationals to include non-GCC nationals as well. The executive regulations of the new law are expected to be issued shortly by the Ministry of Housing, Water and Electricity. Large projects like "The Wave", "The Muscat Golf Course" project and The "Blue City" are expected to benefit from the law.
The residential segment has witnessed major price appreciation in 2005. Land prices have shot up in Oman during the last year, especially prices of lands adjacent to mega projects. Most of the appreciation in prices was driven by speculative buying from GCC investors. Work on "The Wave" project has driven up the prices of adjoining seaside plots in Azaiba which shot up from RO100 per sqm to over RO220 per sqm in less than a year. We believe that the trend of escalating prices is likely to continue led by GCC investors' land purchases.
The areas expected to witness the highest escalation in prices are the areas adjacent to the mega projects undertaken by the government in tourist designated zones such as "Al Azaiba", which is close to "The Wave" project, and the Sohar industrial area which is seeing increased activity, with lots of projects coming up. Residential rents have also climbed by 25% year on year basis in 2005. We expect the residential segment to witness increased activity supported by the positive outlook of the economy, the influx of expatriates, the need for good quality housing, and above all the recent announcement of foreign freehold ownership law.
The office segment in Oman witnessed a major shift from a stagnant stage characterized by weak demand, and lack of foreign investments to a shortage of supply situation spurred by the increase in the number of new companies setting up base driven by the upbeat state of the economy. Demand for high quality commercial space has started to pick up recently creating a shortage of office space, and inducing an increase in commercial rents. With demand for office space outstripping supply, monthly rentals have gone up from RO2.5/sqm in 2004 to RO6-7/sqm in 2005, and yields are currently ranging between 9%-10%, which is low compared to other GCC countries. We expect demand and returns on commercial space to pick up, spurred by the healthy macro-economic environment. The retail segment however did not witness fundamental changes since our last report. With a low consumer appetite in Oman, we do not foresee any demand for retail space.
The industrial segment is another segment witnessing a huge transformation giving that the manufacturing sector is one the cornerstones of Oman's diversification plan. The government has been trying to position Sohar Port as an industrial hub. Sohar 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 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 tourism sector is one of the major components of the government's diversification plan. The government has undertaken lot of measures to revive the sector, starting with the establishment the 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. Accordingly, tourism related projects such as the Wave, Blue City, Muscat Golf & Country Club, and Yitti have snowballed in Oman.
The hotel business in Oman has picked up last year after a long period of recession, which is evident from the strong financial performance of hotel operators in 2005. Hotel occupancy rates are almost 100%, and there is already a massive shortage of hotel rooms in Oman. Around 1000 hotel rooms will be needed in the upcoming 3 years to satisfy the increasing demand mainly from European tourists.
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. We believe that the future of the Omani real estate market looks bright underpinned by strong macroeconomic conditions, high liquidity, favorable demographics, and a proactive government which encourages private & foreign participation in the sector. (Source: Global Investment House – Kuwait).
