As oil drops, Oman's property market shivers
Last Updated: December 20, 2015
The opening of Oman’s real estate market to foreigners began in 2002, as part of the “Vision 2020” plan, which aimed to diversify Oman’s economic base and reduce its dependence on oil revenues. In December 2002, GCC nationals gained the right to own real estate for residential or investment purposes. In February 2006 other nationalities were also given the right to own real estate, but only in Integrated Tourism Complex (ITC) developments.
By buying property, expatriate owners automatically get residency rights for themselves and their immediate families.
Growing expat numbers fuelled a real estate boom. The expat population rose by 12.6% per annum during the period 2004-2014, and by 2014 there were 1,732,188 expats in Oman, according to the National Centre for Statistics and Information
The major ITCs such as Al Mouj Muscat (formerly The Wave) and Muscat Hills Golf and Country Club have led the country's housing market in terms of growth and value. These ITC developments have continuously attracted owners and tenants, with "virtually zero" vacancies and high rents, according to Savills Oman.
ITC prices fell during 2009, but these properties remain in demand due to their superior design, setting and facilities. In Al Mouj Muscat and Muscat Hills, resale values of apartments rose by around 6% in Q4 2015 from the previous year, according to Savills Oman.
Recent Integrated Tourism Complex (ITC) Developments in Oman:
- Juman One – Al Mouj launched this as their primary premium marina front apartment complex. It consists of luxury apartments offered at from OMR 120,000 (US$ 312,093) for one-bedroom units, to OMR 806,000 (US$ 2,096,223) for five-bedroom penthouses.
- The Links – 270 luxury apartments located at Muscat Hills, still under construction with completion targeted in 2017. The average sales price is OMR 810 (US$ 2,107) per square metre (sq. m.).
Aside from the continuous interest in the ITCs, there has been significant 'off plan' sales of new apartment developments in the Muscat neighborhood. Demand has been driven by younger Omanis, who buy 75% of all central area developments, according to Savills Oman. These well-educated and savvy individuals are eager to create their own investment portfolios, buying units they intend to lease out upon completion.
Aside from younger Omani buyers and Gulf Cooperation Council (GCC) nationals, other groups such as Syrians, Iranians also buy houses in the Sultanate. According to Cluttons, their typical budgets range from OMR 130,000 (US$ 338,101) to OMR 150,000 (US$ 390,117).
The value of property sales rose by 2.3% to OMR 1,022.6 million (US$ 2.7 billion) from January to October 2015, compared to the same period last year, according to the National Centre for Statistics and Information (NCSI).
Escalating rents in Oman
Rents in Oman have skyrocketed in the recent past, especially in Muscat and other high demand areas. After rising 21.4% in 2008, rents rose 16% in 2009. But by 2010, average rental rates were dropping. The rent hikes in the 2 years before mid-2008 prompted a huge new supply of residential rental properties especially in the capital area, according to Cluttons, much of it of lamentably poor design and quality.
In central areas, rents for two-bedroom apartments in Q1 2011 were around OMR 400 (US$ 1,040) per month, down from OMR 425 (US$ 1,105), according to Savills Oman. Rents for 4-5 bed villas were around OMR 1,150 (US$ 2,991) to OMR 1,500 (US$ 3,901).
Rents in The Wave range from OMR 800 (US$ 2,081) to OMR 1,750 (US$ 4,551) per month, depending on the housing type, while rents in Muscat Hills range from OMR 600 (US$ 1,560) to OMR 1,700 (US$ 4,421).
In June 2008, as a result of the rising rents, new rules were introduced.
- Landlords may now only increase the rent every 3 years, with a maximum rent increase of 7% of the annual rent stipulated in the lease contract.
- The law also bars landlords from evicting tenants before the end of the lease, and imposes a minimum lease period of 4 years for residential property, and 7 years for commercial
Low income tax in Oman
Rantal Income: Rental income is taxed at a flat rate of 3%.
Capital Gains: There are no taxes levied on capital gains realized by individuals, unless it is derived from a business or professional activity. Capital gains derived from trade or business are taxed at a flat rate of 12%.
Inheritance: There are no inheritance taxes.
Residents: No personal income taxes are levied in Oman. Trade or business income exceeding OMR30,000 (US$60,000) are taxed at a flat rate of 12%.
Buying costs in Oman are minimal
The total roundtrip transaction costs are just around 3%. Because of the relative immaturity of the real estate market most of the properties are bought from the government.
Oman's law is pro-landlord
The initial rent can normally be freely determined by the parties by mutual agreement.
The landlord's interests are protected by either:
a. An advance payment of three month’s or 1 year’s rent; or
b. Promissory note for the payment of rent throughout the lease; or
c. Post dated cheques for each of the rent payment dates.
Last Updated: Dec 20, 2015 Oil sector still dominates; economic diversification continuesOman's diversification plan “Vision 2020” has been quite effective. Oil remains Oman's top revenue generator, although the country's 4.6% economic growth in 2014 was characterized by a 2.4% decline in the petroleum sector, offset by 10.1% growth in the non-hydrocarbon sector.
Petroleum activities' contribution to Oman's total GDP in 2014 did not exceed the 50% mark, at around 47.2%, down from 50.6% of nominal GDP in 2013, and 52.3% in 2012. The service sector contributed around 40.7% of GDP in 2014, a sharp rise of 13.1% from 37.7% in 2013. Non-petroleum industrial activities were around 18.1% of GDP.
The decline of the petroleum sector was largely due to the drop of crude oil prices in 2014 from US$ 108 at the start of the year, to US$55 at the end. However since then, crude oil prices have declined even further, and are now around US$ 36.5 per barrel.
Oman’s GDP growth was 7.1% in 2012 and 3.9% in 2013, according to the Central Bank of Oman (CBO). The country's economic growth is expected to slow down to an average of 3% over the 2015-2016 period, lower than the 4.9% average between 2005 and 2014, according to the global credit ratings agency, Moody’s. The decline was due to the pressure brought by lower oil prices.
In November 2015, the credit rating agency Standard & Poor's downgraded Oman's sovereign debt, as it dropped its long-term local and foreign currency ratings from A- to BBB+. S&P also kept its negative outlook for Oman. "We project that a period of sustained low oil prices will impair Oman's fiscal and external balances more than we had previously expected," according to S&P. Earlier this year, Moody's affirms Oman's A1 rating but also revised its outlook from stable to negative.
The S&P's decision came after the Omani finance ministry revealed that the government incurred a OMR 2.93 billion (US$ 7.62 billion) worth of budget deficit, during the first nine months of 2015. It was in contrast with the OMR 136.1 million (US$ 353.97 million) surplus reported during the same period last year.
In October 2015, Oman's inflation fell by 0.43% from the same period last year, based on the data released by the National Centre for Statistics and Information (NCSI). In 2014, the average inflation was only around 1%, slightly down from the 1.1% inflation registered in 2013. In 2015, Oman's inflation is expected to be around 0.41%, according to the IMF, partly due to low global commodity prices. In 2014 average inflation was only 1%.