JEDDAH, 11 May 2006 — Oman’s economy showed strong performance in 2005 with gross domestic product (GDP) increasing by 22.4 percent to 8.5 billion Omani rials in the first nine months compared to RO6.9 billion in the corresponding period last year. The increase has been driven by the 42.47 percent y-o-y increase in oil revenues, according to a report by the Kuwait-based Global Investment House (Global).
During 2005, aggregate net government revenues stood at RO4.33 billion till October in 2005, higher than the year end net revenues of RO4.04 billion recorded for full year 2004. Net oil and gas revenues accounted for 75.8 percent, and 20.6 percent respectively of total government revenues in October 2005. The government reported a surplus of RO1.1 billion compared to a surplus of RO230.3 million in 2004.
The Global report said the healthy macroeconomic environment has spilled its effects over all the activities in the country 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 percent 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 percent of total plots distributed in 2004.
Key drivers of the Omani real 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. Large projects such as ‘The Wave’, ‘The Muscat Golf Course’ and The ‘Blue City are expected to benefit from the law,” the Global report said.
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 square meter to over RO220 per sq m in less than a year.
The report said 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 percent year on year basis in 2005.
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 percent-10 percent, which is low compared to other GCC countries.
The government has been trying to position Sohar Port as an industrial hub. Sohar is undergoing a huge transformation with around $12 billion 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.
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 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 percent, and there is already a serious shortage of hotel rooms in Oman. Around 1000 hotel rooms will be needed in the coming 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. 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 and foreign participation in the sector,” the Global report added.