Sultanate of Oman Report JULY 29 IN THIS ISSUE Residential Rental Values Stabilize after a period of decline After a period of downward movement, rental values appear to have reached a level where further reductions are unlikely. The Muscat Capital Area rental market entered a period of slow down following the world wide events of late 28 and values in most sectors have fallen by an average of 3%. Whilst rental rates are widely perceived to have returned to their pre boom level and collate with where they were in late 27, certain sectors have seen only minimal decline. The luxury villa market has seen the greatest price correction, with rentals down by up to 4% from peak levels. Contrasting this, the 1-3 bedroom apartment market has seen minimal change year on year reflecting the acute supply shortage and burgeoning demand for such accommodation. The trend for flexible payment terms appears to be gaining momentum, with more landlords prepared to accept staged payments. Contrasting previous years where rental payment yearly in advance for villas and quarterly for mid level apartments was the norm, quarterly payments are becoming more acceptable for villas and in the more affordable apartment buildings, monthly payments are becoming more standard. An increase in the number of newly arriving ex patriates in the first half of the year has ensured that demand for accommodation remains constant. Although in general supply still outstrips demand, there is a shortage of new quality property in the 2-3 bedroom range and a strengthening of rents across all sectors is likely over the next 6 months. AVERAGE RENTAL RATES IN RO PER MONTH FOR STANDARD 12 MONTH LETTING IN CENTRAL AREAS 25 2 15 1 5 2 Bed 3 Bed 3 Bed Townhouse 4 Bed Villa 5 Bed Villa Q2 28 Q2 29 Whilst the rent capping legislation of 27 continues to provide a degree of protection to existing tenants, in some instances it now provides for an artificially high level of rent to be paid by an occupying tenant upon renewal. Tenants are under an obligation to provide three months notice to their landlord prior to the expiry of the lease; failure to do so results in automatic renewal on the same rental terms. Tenants should be aware there is no legal recourse to this situation and if a downward re negotiation of rent is to be negotiated, notice of termination should be served upon the landlord within the stipulated time frame as a protection measure. Rental Values ITC Progress Freehold Values Land Values Savills Oman s recent entry into the Oman real estate market brings together some of the industry s most seasoned real estate professionals. Backed by one of the world s most respected international network of offices and associates, Savills Oman provides the following services: Sales and Leasing Property Management Valuations Research & Feasibility Development Consultancy For further information please contact: Christopher Steel Managing Partner Savills Oman PO Box 947 PC 116 Sultanate of Oman T: + 968 24 692 151 F: + 968 24 692 515
Integrated Tourism Complexes Progress Oman s Integrated Tourism Complexes, or ITC s as they have become known, are the only areas that Non GCC Nationals can own freehold property in the Sultanate. Currently, there are 7 projects under development with a further 4 planned for release in the near future. The impact of the global liquidity concerns have understandably had a major effect on the progress of these developments and although of great appeal to speculator investors over the 27-28 period, this buying segment has now disappeared and the end users are the predominant buyers. The first title deeds have now been registered for non Omani owners at The Wave Muscat, paving the way for visa processing allowing for full residency rights in Oman. ITC Developments handing over property in 29 include The Wave Muscat, Bar al Jissah and Muscat Hills Golf & Country Club. Other ITC developments including Jebel Siefa, Salalah Beach and Al Madina a Zarqa are likely to deliver their first properties in 21 onwards. Further launches of properties at The Malkai, Saraya Bander Jissah and other schemes are expected imminently. MUSCAT HILLS GOLF AND COUNTRY CLUB THE WAVE MUSCAT Values There continues to be a healthy interest for properties within the ITC s, particularly from resident ex patriates in Oman but a wait and watch stance has been the general characteristic of interested buyers over the last few months. Values have been placed under significant pressure since end 28 but Savills Oman believes that the bottom has been reached and the significant increase in re-sales enquiries that is currently being experienced signals that the market believes the prices will fall no lower. It is anticipated that healthy re-sale activity will occur at those developments which are handing over completed homes over the remainder of 29 and into 21. Such activity will inevitably boost the confidence of developers to deliver more primary stock onto the market. AVERAGR RE-SALE RATES RO. PER SQUARE METER (GROSS INTERNAL AREA) 3 25 2 15 1 5 The Wave Muscat Hills Jebel Siefa Bar al Jissah Al Madina a Zarqa Townhouse Villa
CURRENT RE- SALE PRICES IN OMANI RIALS 2 Bedroom 4-5 Bedroom Villa Project Low High Low High The Wave 145, 29, 259, 95,* Muscat Hills 165, 2, 4, 9, Bar al Jissah 395, 695,* Jebel Siefa 152, 258, 51, 1,5, Al Madina a Zarqa 164, 237, 26, 59, Note: High value at The Wave excludes beach front auction properties and Bar al Jissah price reflects Dawn and Dusk houses, not detached villas Land BAR AL JISSAH TOWNHOUSE MUSCAT HILLS GOLF COURSE VILLA THE WAVE MUSCAT VILLA A significant adjustment of land values has occurred over the year, with the inflated values being commanded in 28 returning to more realistic levels. Values reached levels which made development economically non viable so the price correction is seen s a positive step in ensuring that new developments get underway to fill the constant and growing demand for space, both residential and commercial. Whilst few significant land transactions have occurred so far over 29, it is very apparent that developer confidence is returning to the market. This positive outlook coupled with the general decline in building costs is likely to lead to a rise in land sales for speculative development and a general return to value growth. Area Land Value Per Square meter (Omani Rials) Area Land Value Per Square meter (Omani Rials) Residential Commercial Residential Commercial Low High Low High Low High Low High Muttrah 2 8 4 2 Al Khuwair 22 2 8 4 Muscat Area 14 8 2 18 Al Ghoubra South 22 16 75 4 CBD 75 75 Al Ghoubra North 32 16 75 4 MBD 75 5 Bousher 14 75 45 25 Wadi Kabir 16 1 3 18 Al Azaiba North 6 16 75 4 Wattayah 2 12 75 3 Al Azaiba South 75 4 Al Amrat 4 1 14 1 Ghala 75 3 Qurum 28 22 75 4 Ghala Industrial Area 3 15 Shatti Al Qurum (Al Sarooj) 4 3 75 5 Al Seeb 16 75 4 2 MSQ 4 28 75 4 Al Khoud 14 7 75 2 Madinat Al Ilam 4 28 75 4 Al Hail 16 7 35 15 Qurum Commercial Center 1 8 Al Mawaleh 125 7 4 15 Muna Heights 35 18 Al Rusayl 15 8
The Commercial Market The commercial office market is entering a period of uncertainty. The market was under-supplied in the period 26-28 and for over 3 years (23 26) less than 2, square meters of new prime office space was completed for speculative leasing. This was a direct result of the lack of development as a consequence of historically low prevailing rents. With the rapid rental growth of up to 1% within a 12 month period in late 27-28, commercial property development once again became financially attractive and a massive increase in development projects commenced. In Capital Area Muscat, there is approximately 18, square meters of new office space in its development and construction stage, with an estimated 8% of this space aimed for the speculative office leasing purposes (the remaining space being largely developed for self occupation with excess space being made available for the leasing market). Of this total stock addition, 8, square meters is considered prime Grade A office space, the remainder subprime. With an historic annual space take up of less than 2, square meters per year, the market faces an imminent oversupply situation with rental pressure likely to be witnessed as landlords compete to attract tenants to their space. A major factor in the success of office space leasing will be each building s ability to provide adequate car parking. With no public transport systems, Muscat s private car use is high when compared to worldwide norms. However, most buildings provide car parking ratios of less than 1 space per 75 square meters leased and parking is becoming an occupying tenant s greatest concern. Buildings able to provide a ratio of 1 space per 35sqm will likely continue to attract new tenants and protect their rental returns; those offering less than this will likely see significant downward rental pressure. AVERAGE RENTS IN RO PER SUQARE METER PER MONTH PRIME OFFICE SPACE 16 14 12 1 8 6 4 2 Ruwi/MBD Qurum Al Khuwair Shati al Qurum Azaiba/Ghala Q2 27 Q2 28 Q2 29
About Savills Oman Savills Oman - a company that combines the very best of local knowledge with International capabilities. Savills a name trusted for professional service worldwide, Savills Oman a name that continues the tradition of excellence in the Arabian Region. Savills was established in the UK in 1855 and today has an extensive network of offices and associates throughout the UK, mainland Europe, the Americas, Asia Pacific and Africa. Listed on the London Stock Exchange and employing over 18, staff worldwide in 24 offices, Savills has been ranked 1st in UK for past 8 years and has extensive expertise in global property markets. Arabian Real Estate LLC, is a specially formed company that was born to fill an important role in the rapidly changing real estate market of the Sultanate. Utilising the many years of experience of some of Oman s most informed real estate professionals, the company provides comprehensive consultancy and agency services throughout Oman from its offices in Muscat. Services provided in Oman include: Agency Services New Development Sales and Marketing Residential and Commercial Sales Leasing and Property Rental Services Property and Facilities Management Consultancy Services Valuations Development and Project Consultancy Research and Feasibility Studies Relocation Services PO Box 947 PC 116 Sultanate of Oman T: + 968 24 962 151 F: + 968 24 962 515 muscat@sav-oman.com The information contained herein is for private and general information purposes only. Arabian Real Estate LLC trading as Savills Oman accepts no responsibility for third party use of the information or reliance of opinions given herein. Any party utilizing this information does so at their own risk and Arabian Real Estate LLC trading as Savills Oman disclaims all responsibility for such use.