Overview

Property report

2

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Real estate performance has been declin-ing with a decline in nominal GDP owing to low oil prices. However, in the year 2017 till May, oil prices were about 51% higher than in the same period last year when oil prices touched historic lows. Even after accounting for the increase, oil prices are still low and OPEC output cuts have only marginally im-proved prices. US shale producers have be-come the swing producers with the rig count in the US going up when prices cross USD 50/- per barrel and rig count going down when prices fall to about USD 45/-per barrel. Price forecast for oil is looking weak and oil producing countries are planning for a pro-longed period of low oil prices.

The government of Oman had run a large budget deficit of about RO 4.500 billion in 2015 and this had increased to RO 5.2 billion in 2016. The budgeted deficit for 2017 is RO

3 billion and actual till July 2017 is over RO 2 billion. The Debt to GDP ratio at the end of 2016 stood at 34.3% and this is likely to increase this year. The government is taking austerity measures and cutting expenditure as large budget deficits are not sustainable in the medium to long term. The government is also trying to raise resources through an increase of corporate tax from 12 to 15 per-cent this year and the proposed introduction of VAT of 5% sometime next year. The gov-ernment is now relying on the private sector to grow the economy and create employ-ment. The government has launched the Tanfeedh (National Program for Enhancing Economic Diversification) program, which focuses on the sectors that Oman has a competitive advantage in viz. Tourism, Min-ing, Manufacturing, Logistics & Fisheries to grow the economy.

Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Jun 2017

Dioploma and above Others

200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,0001,800,000

October 2017

3

Employment is the biggest generator of de-mand for housing both for buying and rent-ing. To see where the market is going it is essential to look at the job market.

The total number of expat employees has gone up from 1,848,175 as on December 31, 2016 to 1,869,416 as on June 30, 2017 an increase of 24,241 (1.31%). However a closer look at the numbers shows that the number of expats who hold a diploma and above has gone down, in the same period,

from 159,506 to 154,500 a decline of 5,006 (3.14%). These are the job holders who are likely to rent apartments and their decline is putting a lot of pressure on the rental market. Overall increase in expat numbers conceals this fact as the increase is mainly in labor category who usually live in camps. As you will see in the later part of the report, rents have declined significantly. Occupancy has dropped and therefore the rental income has gone down markedly.

Employment

Source-National Center for Statistics & Information monthly statistical bulletins

Expat employees in the private sector

1,17

2,32

7

1,37

5,97

5

1,41

2,17

7

1,53

6,09

3

1,68

8,66

9

1,71

4,91

6

151,

266

157,

955

161,

578

159,

506

154,

500

20172012 2013 2014 2015 2016

50,000

100,000

150,000

200,000

250,000

Omanis in the private sector

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172,066 181,860197,510

208,057223,083

236,930

143,

855

Property report

Residential MarketWith declining number of white collar ex-patriate employees rents have declined by about 8% y-o-y in the first half of 2017. How-ever, premium properties with facilities like swimming pools & gymnasiums are enjoying

higher occupancies and smaller declines in rents. In addition declines in rents and occu-pancies depend on the location. Given below are declines in rents in H1 2017 against H1 2016 (y-o-y)

The total number of Omanis in the private sector has gone up from 223,083 as on De-cember 31, 2016 to 236,930 as on May 31, 2017 an increase of 13,847 (6.2%). The to-tal number of Omanis, in the same period drawing RO 600 and above has gone up from 77,528 to 82,446 an increase of 4,918 (6.3%). These are likely to be white collar employees. Over decades, the government on Oman, has invested in education and to

find qualified Omanis for white collar jobs is not difficult.We forecast a further decline in rents and occupancies as more well educated expat employees are replaced by well-educated Omanis. In general Oman has, among the highest home ownership, in the world and Omanis prefer to live in their own homes, sometimes in extended families, till they are able to buy their own houses.

4

0.00%

-5.00%

-10.00%

-15.00%

-20.00%

-25.00%

-30.00%

-35.00%

Source-Al Habib internal data

Al F

alaj

/ Ruw

i/D

arsa

it/ H

amriy

a/

Wad

i Kab

ir

CBD

/ MBD

Qur

um

Al K

huw

air

Baus

her/

Ghu

bra

Amer

at

Gha

la/ A

zaib

a

Mab

ella

h/Al

H

ail/

Al K

houd

/M

awal

eh/ S

eeb

-7.3

3%

-32.

49%

-8.4

7%

-14.

91%

-4.6

8%

-19.

25%-1

4.90

%

-2.4

5%

-8.0

5%

Rent reduction

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0%

10%

20%

30%

40%

50%

60%

October 2017

5

Occupancy is as important as rents and in some locations vacancy rates are very high. Given below are the statistics of the most

popular and least popular locations. We have used enquiries as a surrogate for occupancy.

0.00

5.00

10.00

15.00

20.00

25.00

Ak/ B

aush

er

Amer

at

Al K

houd

/ Mab

.

Azai

ba/ G

hubr

a

Gha

la/ A

nsab

Maw

aleh

/ See

b

MQ

/ Al I

lam

Mus

cat/

Mut

trah

Qur

um/ S

hatti

Al F

alaj

/ Ruw

i

Wad

i Kab

ir

Wat

taya

/ Al N

adha

1%3%

27%

19%

8%

5%3%

1%

12%

18%

2%1%

Enquires - Area wise - (Jan - June 2017)

The mix of 1, 2 & 3 bedrooms is very im-portant for occupancy levels. Given below is the mix of the popular configurations. As you will see the most popular is the two bedroom

format followed by the one bedroom format. Have the wrong mix can lead to higher va-cancy levels.

%

1BR 2BR 3BR Villas

25%

55%

12%8%

Configurator break upSource-Al Habib internal data

Source-Al Habib internal data

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Office marketRents have declined sharply in almost all lo-cations, CBD being affected more than the others. Occupancy is even more of a problem than in the residential segment with owners suffering long periods of vacancy. Rents in CBD are RO 3.000 per sq. m per month and sometimes even lower. In the more attrac-tive areas of Qurum, Al Khuwair, Azaibah etc rents are RO 5/- to 6/- per sq. m per month and sometimes below. However, there is a small premium of about RO 1/- to 2/- per

sq.m per month in case the property is grade A office space with good parking ratios.A very small number of office space proper-ties are being offered for outright sale and there appears to be good demand for these. Prices vary from RO 600/- per sq. m to RO 950/- per sq. m depending on the facilities like raised floors, high quality elevation, state of the art security systems, adequate park-ing. etc.

Property report

6

Hospitality SectorTourism is one of the thrust area for the gov-ernment and Hotels are performing better than other asset classes within the real es-tate industry. In the period January to April 2017, 3 to 5 star hotel guest numbers are up 13.8% from 514,101 to 585,192, revenues are up 5.3% from about RO 73 million to RO 77 million and occupancy up from 64.2% to 65.3%. The number of European guests has gone up by about 40%. As the new airport gets ready, the Oman Convention & Exhibi-tion Center starts attracting the MICE (Meet-ings, Incentives, Conventions and Exhibi-tions) customers, visa restrictions are eased and more hotel rooms are available, we can expect tourism to grow at an even faster pace.There are about 16,000 hotel rooms in Oman and another 10,000 rooms from budget to luxury hotels are expected to be added in the next couple of years. While demand is growing and adequate hospitality infrastruc-ture is essential to attract tourists, there may be softness for a couple years when supply comes on line and before demand catches up.

Expat Numbers with

diploma & above down by

5000Retail SectorThe Muscat Grand Mall (MGM) is expand-ing with the addition of more than 100 new outlets. The construction of a super region-al mall in Bousher, The Mall of Oman, from Majid Al Futtaim group, with an investment of about USD 450 million and with about 350 outlets, has started. This will be the biggest mall in Oman. The USD 300 million Palm Mall in Mabelah from the Jarwani group is in an advanced stage of construction. A large 7,000 sq. m aquarium and a 5,000 sq. m snow park are the differentiators of this mall. Another mall, the Al Araimi Boulevard in Seeb with about 70,000 sq. m of leasable area and 220 + units is also under construc-tion and is expected to be completed by the end of 2018.

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Averageapartment rents

down by

8%

October 2017

7

Even as retail malls/outlets grow exponen-tially, the slowing economy has led to a slow-down in retail sales and retailers are feeling the pressure. They are negotiating lower rents and longer rent free periods. The weak-er and older malls are coming under a lot of

pressure in retaining retailers and maintain-ing rents.Even with softness in the retail sector, pop-ular high streets like Ruwi high street, the Seeb souq and the Al Khoudh souq are able to retain their retailers and maintain rents.

Property PricesIn the first half of 2017, real estate transac-tions have increased 6.8% from RO 570 mil-lion to 608 million. However mortgages have declined sharply to an annualized RO 1,600 million from the 2016 figure of RO 5,582 mil-lion.With the decline in rents, investment proper-

ty prices have declined with the investors de-manding the same yield. Within investment properties, land prices have declined sharply from between 15 to 30%. Cost of construc-tion remaining the same, it was inevitable that the correction in property prices would be reflected in declining land prices.

Changes in laws and taxesThe government has committed to imple-ment VAT sometime in 2018. Taxes on leas-es and on selling properties are already at 5% and we will know the impact of VAT on real estate when the government announces VAT on real estate transactions.

As part of Tanfeedh, the government plans to permit Real Estate Investment Trusts (REITs). Real estate investments are usu-ally lumpy, illiquid and hence riskier for indi-viduals to invest in directly. REITs will ena-ble smaller investors invest in real estate in small amounts with risks spread out. Since units will be traded, the investor will not face the problem of a lack of liquidity. This is a welcome move.

Expatriates wishing to invest in real estate in Oman have limited options in a few Inte-grated Tourism Complexes (ITCs). We un-derstand the government is looking at liber-alizing this a little so that expatriates have more of a choice. Even within the present framework, there are some affordable ITCs that are being launched.

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For more details:M.Sudhakar Reddy, Chief Executive Officer

+968 24864993 +968 24703666 +968 99333427 info@alhabib.om

Alhabib & Co LLC 2017. The information contained herein is intended to provide gener-al information to the public and has been obtained through sources deemed reliable but cannot be guaranteed as to its accuracy. Any information of special interest should be obtained through independent verification. The information available in this report is the property of Al Habib Group, any use of any part of it requires prior written consent.

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