Oman's diverse resilient property markets

The Omani government is forced to embrace fiscal austerity as soon as oil prices plunge, as the Sultanate's 2016 Budget attests.



By Matein Khalid

Published: Sun 21 Feb 2016, 11:00 PM

Last updated: Sun 16 Feb 2020, 8:58 PM

The sultanate of Oman has enjoyed phenomenal economic development success in the 45 year reign of His Majesty Sultan Qaboos bin Said. Modern Oman is one of the true social, political and economic success stories of the Arab world. However, the Achilles heel of the Omani economy is its huge dependence on oil and gas export earnings, 60 per cent of the sultanate's GDP. Standard and Poors just downgraded Oman's sovereign credit rating to BBB-, below the lowest investment grade level. Oman producers one million barrels of oil a day, so the epic price crash since mid 2014 costs the sultanate at least $60 million a day in lost petrocurrency revenue. Unlike Abu Dhabi, whose sovereign wealth fund assets are at least four times its GDP, Oman cannot use foreign assets as a shock absorber to offset lower oil revenues. The State Reserve Funds, assets are estimated at only one third of the Omani GDP.
The Omani government is forced to embrace fiscal austerity as soon as oil prices plunge, as the Sultanate's 2016 Budget attests. Unfortunately, 50 per cent of government spending is on wages, subsidies, social welfare programmes for one of the youngest populations in the Middle East. The IMF estimates Oman's budget break even price at $100 Brent and the 2015 budget deficit was 18 per cent of output.
Paradoxically, Oman's property market offers compelling investment opportunities, as the sultanate's diversification and job creation strategy emphasises tourism, knowledge industries and the expansion of the Sohar and Salalah industrial complexes. Affordable housing is a high priority for the Omani government and the sultanate is a natural logistics hub for the Indian Ocean its dhow fleets once criss-crossed from Zanzibar to Malacca.
Premium communities in Muscat such as Qurum beachfront (Shatti al Qurum) or the Muscat Hills Golf Project will remain extremely well bid due to high rental demand and occupancy rates. This is also true for MAF's Al Mouj (The Waves) project where Savills estimates a four unit villa can command a monthly rent of Dh18,000, a huge amount in Omani riyals but easily affordable by the expat business elite. Pricing in the Omani residential market has been more resilient than in the more high beta Dubai market, where new build supply and speculative offplan capital flows lead to steep home value cycles. The Expressway and other Muscat urban transport initiatives have helped link communities.
It is a pity that older, Arabesque villas (which I simply adore!) face lower demand even in established areas of downtown Muscat. Few of my Lawati friends live in their lovely ancestral houses with filigreed balconies and courtyards in the historic Lawati quarter in Muscat but none of my Bastaki friends in Dubai live in their exquisite ancestral homes in Bastakiya on Dubai Creek. This was not the case when I was a teenager in Dubai in love with roaming the Omani jebels and wadis with my cronies. Young, affluent Omanis want the tedious glass-concrete international style villas a la the American Southwest not the elegant Arab stone mansions of their ancestors. There is also huge latent demand for pool/gym/yuppie café style apartment buildings in central Muscat.
The grim new economic realities in Oman also coincide with steeper expat education and health care costs for higher income expats. This means big villa rents for expat executives face pressure as companies reduce such perks. Qurum, once dominated only by Omani style villas, now boasts some lovely beachfront apartment buildings. Its best hotel (my invariable haunt in the old, 1990's Muscat days) is owned by Dubai's Arenco, the developer of the Silver/Golden Sands.
Oman is one of the most compelling tourist destinations in the Arab world and I speak as someone who is veteran of Marrakech, Wadi Rum, Zamalek and Ein Mreisse. The Shangri La is sheer loveliness Muscat Hills and The Waves are world class integrated projects. Omanis, GCC nationals, Westerners and South Asian homeowners have all embraced these two projects. Villas in these projects command the highest price per square foot in the history of the sultanate.
The 2,000 new apartments in Muscat will be easily absorbed, thanks to amazing Omani demographics. With Muscat equities in a savage bear market, property is the only investment game in town. The office market in Oman outside the Grade A Central Business District (Ruwi) areas faces rental and capital value pressure due to the oil crash and fiscal austerity. I doubt if new speculative luxury offplan projects will get funded in the GCC's current bank risk aversion spasm. The time for leveraged fairy tales is over.
Researched and compiled by Matein Khalid. Mr Khalid is a global equities strategist and fund manager. He can be contacted at: matein@emirates.net.ae


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