Wednesday, October 25, 2017

Oman's real estate market to bounce back in 2018

Oman's real estate market has been hit by the weak global economy leading to a drop in overall demand for housing. However, there remain pockets of activity and clear opportunities in both the residential and commercial sectors, according to leading international real estate consultancy, Cluttons.

Oman’s GDP growth is expected to rise to 5.2 per cent next year, aided by the introduction of natural gas production at the Khazzan gas field and the opening of the new airport in Muscat, stated the industry expert.

This will mark the strongest rate of expansion since 2015 and, in turn, should filter down to help steady the country’s property market, said Cluttons in its report.

"The Cluttons Muscat Winter 2017/18 Property Market Outlook" indicates that Oman’s economy, like many of if its Gulf neighbours, is still working its way through a challenging period, triggered by the shock collapse in oil prices in 2014.

The country, however, is embarking on a journey to wean itself off its dependence on oil revenues through diversification efforts and positive government intervention, it added.

Ian Gladwin, the head of Cluttons Oman, said: "Primary drivers of these opportunities include major projects such as the Khazzan gas field project and the new airport in Muscat. The airport, which will nearly double passenger capacity to 12 million passengers per annum, is expected to boost the country’s tourism and hospitality sector, while also opening new development opportunities for land parcels around the airport."

On the housing sector, Cluttons said that in the absence of sustained economic growth, demand for residential rental accommodation in Muscat remains muted.

Anecdotal evidence suggests that job losses and housing allowance reductions continue, albeit to a slightly lesser extent than the same time last year, it added.

Faisal Durrani, the head of research at Cluttons, said: "The last 12 months have seen relative stability bedding in across virtually all of the 12 main residential submarkets in the Omani capital which we monitor."

"That said, our analysis shows that the premium residential locations across the city have seen the largest drops in rental values as tenant demand has increasingly focussed on more affordable locations and properties. Al Mouj and Muscat Hills for instance, have experienced rental corrections of up to 10% over the last 12 months," he added.

In the 12 months to the end of September average residential rents receded by a marginal 0.8 per cent, and by just 0.2 per cent in the third quarter, according to the Cluttons report.

On the office sector, Cluttons said the rents in commercial establishments have seen limited declines through 2017.

Over the course of the last 12 months, the CBD (central business district) has been the city’s weakest performer, with rents dipping by 14.3 per cent.

Despite the declines, occupiers still appear nervous to commit to relocating, often deterred by the expenses associated with a move, including fit out costs, stated the property expert.

"Although we expected landlords to offer greater flexibility due to the stagnant market conditions, this has failed to materialise en masse," remarked Gladwin.
"In contrast, absorption has been reasonably strong for recently completed, higher quality developments where landlords have taken a more proactive approach to attracting tenants, particularly in terms of offering competitive rental rates," he added.

As for the industrial market, the Cluttons report indicates that the development of Duqm as an industrial port city of potentially international significance continues to gather pace.

The port is already operational with Phase One expected to be fully completed in 2019 with the South Korean government recently announcing plans to assist with developing Duqm into a ‘smart city’.

In addition, 10 sub-usufruct agreements have now been signed between Oman Wanfang and Chinese companies for projects worth a total of $3.2 billion within the 11.7 sq km China-Oman Industrial Park. These projects are expected to be completed in 2021 and will create around 4,000 jobs, it added.

On the 2018 outlook, Cluttons said that aside from the clear risks to overall demand levels for both residential and commercial property that stem from any further weakness in oil prices, a number of downside risks are being monitored, including value added tax (VAT) and foreign investment law.

"While Saudi Arabia and the UAE have forged ahead with plans for VAT, commencing January 1, 2018, Oman is yet to declare its intentions on the formal roll out of a VAT regime," stated Durrani.

"The implications of VAT in Oman are likely to be a spike in inflation, which may dent consumer confidence and spending. The impact on the property market is still unclear, but if the sultanate follows in the footsteps of the UAE by taxing all commercial sales and lease transactions, demand is likely to weaken further, driving down rents from their current record low levels," he noted.

"Should Oman follow the Saudi Arabian authorities’ decision to tax buy-to-let residential property, we may see a sudden weakening in the buoyant second homes market," he added.-TradeArabia News Service

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