INVESTING IN Property tax & market insight

Autumn 2017 Investing in Oman – Property tax & market insight

Contents

3 Introduction

4 residential property market snapshot

5 Muscat commercial property market snapshot

6 Considerations for investing in Oman

Introduction

Cluttons has partnered with Trowers & Hamlins to produce a guide to investing in the property market in Oman.

This has been a cross team effort, working with Trowers & Hamlins in Oman to simplify the obligations for those investing in the Sultanate’s residential and commercial markets

The document also includes an update on the residential and office markets in Oman and aims to provide a quick and easily digestible resource for all investors and purchasers.

Like many of its Gulf neighbours, Oman’s economy is still working its way through a challenging period, triggered by the shock collapse in oil prices in 2014. As the country continues to embark on a roadmap to wean itself off its dependence on oil revenues through diversification efforts and positive government intervention, the real estate market has been impacted by a reduction in overall demand. There remain, however, some pockets of activity and clear opportunities for landlords in both the residential and commercial sectors.

Oxford Economics is forecasting that GDP growth will fall to a nominal 0.4% this year, from 1.5% last year as government spending continues to ease, underpinning the slowdown currently being experienced. 2018 is, however, expected to be a stronger year, with GDP growth expected to surge by 5.2%; the strongest rate of expansion since 2015. The rapid acceleration of economic growth is forecast to be fuelled to a significant degree by the introduction of natural gas production from the Khazzan gas field. In addition, stronger non-oil sector growth is projected as a result of an anticipated easing of fiscal pressures due to a turnaround in oil prices from about USD 45 per barrel at this time last year to around USD 55 per barrel in October 2017. A freeze on public sector recruitment is also forecast to aid the reduction in the budget deficit to 10.9% of GDP this year, from 21.1% of GDP in 2016.

With this in mind, we wanted to delve further in to the investment obligations for Oman.

3 Investing in Oman – Property tax & market insight Investing in Oman – Property tax & market insight

Muscat residential market snapshot Muscat commercial market snapshot

Rents show signs of increasing Firm office rents in 2017 Average residential rental values by submarket - Q3 2017 Performance of office rents across Muscat’s key submarkets stability 1,600 Elsewhere in Muscat’s property market, While we wait for evidence of sustained office rents have seen limited declines 16 economic growth, demand for residential 1,400 through 2017. Over the course of the rental accommodation in Muscat last 12 months, the CBD has been 14 remains muted. Anecdotal evidence the ’s weakest performer, with 1,200 of losses and housing allowance rents dipping by 14.3%, followed by Al reductions continues, albeit perhaps to Khuwair (-9.1%). Qurum, Ghubrah and 12 a slightly lesser extent than this time last 1,000 Azaiba all followed in third place, with year. Bearing the brunt of cost cutting average declines of 750 baisa, or 8.3%, OMR / month programmes remains the public sector, 800 to OMR 5 psm over the same period. 10 where positive government intervention Despite the declines in office rents and cost management has seen a 600 across the board, occupiers appear 8 trimming in the public sector work OMR / month force, while the construction sector has nervous to commit to relocating, often 400 been impacted by a reduction in state deterred by the expenses associated spending levels. This has translated into with a move, including fit out costs. 6 a contraction in the number of those 200 Furthermore, we expected greater employed by the sector. flexibility from landlords due to the 4 0 stagnant market conditions, however The last 12 months have seen relative this has failed to materialise en masse, Ruwi Qurum

stability bedding in across virtually all Al Mouj with many landlords not being proactive Bausher Maabela 2 of the 12 main residential submarkets Al Khuwair and responsive to the weak market Muscat Hills Sur Al Hadid Sur

in the Omani capital which we monitor. Shatti Al Qurum conditions. 2011 Al Hail/Mawalleh 2008 2009 2010 2012 2013

That said, our analysis shows that the Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 premium residential locations across Azaiba/ Ghubrah North In contrast, absorption has been the city have seen the largest drops in As Qaboos Madinat reasonably strong for recently CBD Qurum Al Khuwair Shatti Al Qurum Ghubrah Azaiba achievable rental values over the last Apartments Villas completed, higher quality developments year as tenant demand has increasingly where landlords have taken a more focussed on more affordable locations Source: Cluttons proactive approach to attracting tenants, Source: Cluttons and properties. particularly in terms of competitive rental values. Overall, in the 12 months to the end of Average rents in Muscat are now Here too however, we have seen waiting Shuwaymiyah and gypsum from Manji September average residential rents generally 20% to 25% lower than they lists erode over the last 12 months. Industrial sector boost likely with (both in Dhofar) to the Port of . receded by a marginal 0.8%; and by just were during Q3 2014, right before oil Both schemes do, however, continue Duqm development The South Korean government has also 0.2% in Q3. The latest change leaves prices plunged from highs of close to to attract high levels of interest and recently announced plans to assist with The development of Duqm as an average rents at about OMR 690 per USD 110 per barrel, highlighting how remain very well let, with both buildings developing Duqm into a “smart city”. industrial port city of potentially month, down OMR 5 per month on Q3 intrinsically intertwined Oman’s economy reporting occupancy levels near 100%. international significance continues 2016. and property markets are with the Elsewhere, tenants continue to be drawn Overall, while industrial warehouse rents to gather pace. The port is already performance of oil prices. to well managed buildings, particularly have held stable across Muscat so far operational with Phase 1 expected to As always, the average figure for the those that offer what is perceived to this year, Duqm may well spark further be fully completed in 2019 while the market as a whole does conceal a Tenant’s market be better quality accommodation and activity across the country should the 230,000 barrels per day oil refinery (a more complex picture. Average rents facilities at competitive prices. It is these Chinese investments in the area drive The rental market undoubtedly remains joint venture between Oman Oil and in premium residential areas such as buildings that have been able to ride up interest from international logistics firmly in the favour of tenants. Weaker Kuwait Petroleum) and the crude oil Muscat Hills, Al Mouj and Madinat As out the current market weakness and and manufacturing occupiers looking demand has resulted in the reduction storage facility at Ras Al Markaz are Sultan Qaboos have dropped by around continue operating at strong occupancy to position themselves on the emerging or eradication of waiting lists for key projected to become operational at the 10% in comparison to the same time levels with minimal rental value Silk Route resulting from the Chinese residential buildings in the city. end of 2020. There is also reported last year reflecting a dampening of reductions. government’s Belt & Road development demand for more expensive properties. to have been strong private sector strategy. Buildings such as Hatat Complex and Al Other locations have generally seen interest in investing in the proposed Assalah Towers are highly sought after drops of around 5% in comparison to OMR 1 billion, 350 km freight railway buildings in Muscat due to the quality this time last year, but both Ruwi and line to transport limestone from Al of accommodation they offer combined Sur Al Hadid, which are both relatively with their perceived value for money, low value locations, have registered no facilities and highly rated property change in rents over the last 12 months. management services.

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Considerations for investing in Oman

Real estate in Oman is governed by While companies set up in the free Leasing of either residential or Leases must be registered before the Royal Decree 5 of 1980 which states zones are permitted to have 100% commercial property in Oman is not competent municipality. Registration is that all land is owned by the state unless foreign ownership and benefit from restricted. an obligation of the landlord. However, otherwise specified. Under this law, certain advantages, these benefits do the tenant may register the lease if the Omani individuals may own land on a not extend to property ownership as Registration of property transactions parties agree, or if the landlord fails to freehold and leasehold basis. foreign ownership of freehold titles is not is required by Omani law. Where there register the lease within one month of permitted. is a transfer of freehold property, an the date of the lease. Non-registration Restrictions on property ownership apply application for registration at the Land of the lease and non-payment of the in Oman as in other GCC countries. Foreign ownership of freehold land by Registration Department at the Ministry prescribed registration fees within one GCC nationals and Omanis have non-Omani individuals and companies of Housing should be completed and month of the date of the lease shall the right to own the freehold title to is permitted in areas designated as submitted by both the seller and the render the lease unenforceable, and the buildings and land in Oman. Ownership “integrated tourism complexes” (ITCs). buyer, and a registration fee is paid parties may also be subject to a fine. of freehold title to land by wholly when the parties submit the sale GCC and Omani-owned companies Under ITC arrangements, the agreement. Mortgages must also be registered in is permitted, as well as by public joint government of Oman grants usufruct order to be enforceable. stock companies with up to 70 % foreign rights to developers to build residential Both parties have to sign the transfer ownership where they are engaged in and investment units, with the rights document, along with two witnesses As part of the VAT Treaty signed by the real estate development. and obligations being agreed in a before the registrar. The associated GCC countries, Oman will be introducing development agreement. Once the costs are: stamp duty of OMR 2; VAT in 2018 or 2019, although the exact As with other GCC countries, “free development is complete, the developer application fees of OMR 10; and a date and regulation of VAT is unclear. zones” exist in Oman. There are may dispose of freehold title to registration fee of 5% of the property While common principles will be shared currently four free zones in Oman, being residential units to purchasers including value. by the GCC countries (for example a Salalah Free Zone, Sohar Free Zone, Al non-GCC nationals. 5% VAT standard rate), each individual Mazunah Free Zone and Al Duqm Free country will have its own regulations Zone. in respect of how their VAT system will operate including its application to residential and commercial real estate transactions.

6 7 For further details contact

© Cluttons LLP 2018. This report is for general informative purposes CLUTTONS TROWERS & HAMLINS only. It may not be published, reproduced or quoted in part or in Ian Gladwin Peter Greatrex whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. While every Head of Oman [email protected] effort has been made to ensure its accuracy, Cluttons [email protected] and Cluttons LLP accept no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly Abdul-Haq Mohammed copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Cluttons Middle East Richard Paul [email protected] and Cluttons LLP Head of Professional Services & Cluttons International Holdings (trading as Cluttons Middle East) is Consultancy Middle East Thomas Wigley part of Savills plc. [email protected] [email protected] Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK, cluttons.me Jamie Gibson continental Europe, Pacific, and the Middle East, offering [email protected] a broad range of specialist advisory, management and transactional services to clients all over the world. www.trowers.com