The Sultanate of Oman, located in the Persian Gulf, is not your typical international real estate investment destination.
It is a relatively little-known, peaceful Gulf country of about 5 million souls, 40% of which are expatriates, mostly from South Asia.
There are many friendly camels too.
In this article we will explore:
- A bit of background on Oman
- The economy of Oman and its outlook
- The real estate investment market in Oman
- The top developments to consider when making a real estate investment in Oman
- A concrete example of a real estate investment in Oman with a full yield calculation breakdown
- The Oman residency play: residency-by-investment in Oman
1. A bit of background on Oman
Oman was a typical Gulf tribal land until His Majesty Sultan Qaboos bin Said ascended to the throne in 1970. Thereafter, Oman experienced decades of renaissance on the back of economic and social reforms, not to mention lucrative oil discoveries.
If you believe Democracy is the only appropriate system in this diverse world of ours, then look no further than Oman as a counter example. His Majesty was almost universally loved, and turned his country into a unified, peaceful haven in the Middle-East. Oman is known as the Switzerland of the Middle East for its neutral foreign policy.
In early 2020, His Majesty Sultan Qaboos passed away following a long battle with cancer, and contrary to many observers’ predictions, a peaceful transition followed with the nomination of Sultan Haitham bin Tarik.
2. The economy in Oman and its outlook
Oman transformed from a subsistence economy into a petrostate. Even though industrial production accounts for 38% of GDP according to the World Bank, oil & gas together represent between 68% and 85% of government revenue depending on commodities prices.
All was well and good until the price of oil plummeted in the mid-2010s. Since then, the government debt to GDP ratio has shot up from 15% in 2015 to over 80% in 2020 due to fiscal deficits that reach almost 20% some years.
The peg of the Omani Rial to the USD has held, and the Central Bank is committed to defending it. His Majesty Haitham bin Tarik is not a complacent Arab politician – he understands that his people depend on his leadership. However, the peg is a definite risk.
His Majesty is implementing four axes of reforms
- Budget cuts representing 15% of government spending in 2021. Such tough, but much needed, austerity measures would be near impossible to pass in a Western-type democracy. This will result in salary freezes for the public sector, less infrastructure spending, less subsidies, and job losses in the bloated public sector.
- His Majesty understands the danger of his government budget being almost entirely dependent on the oil & gas sector. A VAT of 5% is therefore to be implemented in 2021 and maybe even personal income tax in 2022. This is obviously an unpopular reform. However, I know business in Oman well and I can tell you that businessmen are used to making insanely fat margins. The reality is that this VAT will be mostly absorbed by businesses rather than passed on to consumers.
- Encouraging foreign investment to diversify the economy. Such measures are typically a bit controversial, but the new Foreign Capital Investment Law now allows foreigners to own 100% of businesses in Oman without the use of local sponsors. This is valid only for specific, high value adding industries, which will be a net benefit for Omanis as it won’t make foreigners compete with locals in more pedestrian sectors of the economy.
- A policy of Omanization. Expatriates represent 40% of the population. Most of them work in the private sector, while most Omanis are in the public sector. His Majesty’s objective is to reduce the number of expatriates so that Omanis can take jobs in the private sector. This is beneficial on multiple fronts:
- Less government money is spent on salaries.
- Locals are employed in the private sector, resulting in more local savings as opposed to foreigners sending their savings abroad. It is very beneficial for the current account balance.
- In 2020, nearly 300,000 expatriate workers left Oman. A number of these jobs will be cut, but many will be taken by Omanis.
His Majesty fully grasps the situation and is grabbing the bull by its horns. These reforms will not be painless, but are much needed for his country and people.
3. The top developments to consider when making a real estate investment in Oman
If you want to invest in Oman, I suggest looking at developments near Muscat, the capital. The reality is that even though you can find cheaper developments in other parts of Oman, accessibility is an issue.
Muscat is equipped with a brand-new international airport, a reliable national airline (Oman Air), and extensive connections to Europe, the Middle East, Asia, and Africa.
Foreigners are allowed to invest in Integrated Tourism Complexes (ITCs) only. This results in a two-tier market comprised of the local, Omani market, and the ITC market in which foreigners can invest. Typically, I shun such markets as this is an inherent flaw. Healthy markets are free of government intervention.
In this particular case, while ITCs are much more expensive than the local market, there is substantial investment by locals in these ITCs as locals see the value in paying up due to their higher quality and better amenities. In fact, the majority of residents and owners in such ITCs are Omani.
Here are the four main ITCs in the Muscat area that foreigners can consider for a real estate investment in Oman.
Al Mouj (The Wave)
Al Mouj is the premier ITC in Oman. It is located right next to the international airport in Muscat, boasts a lovely marina, and is very popular with locals and foreigners alike.
It’s a liquid market, so it is easy to find tenants, as well as buying and selling if the price is right. As an actual investment, it is the best play in Oman. Villas and apartments of all sizes and configurations are available, and the Kempinski Muscat is within the development. Additionally, a St Regis is being built right next to the Greg Norman designed golf course.
Muscat hills is inland, close to the airport. It hosts a nice golf course and housing there is much more affordable than in Al Mouj.
However, it is less appealing. Liquidity is low, prices have plummeted, and in many ways it has the looks of a development that is on the brink of having financial issues. I’d consider Muscat Hills only if I wanted a cheap property within Muscat itself, and wanted a low price point, knowing full well it’s a bad investment.
About 30 minutes away from Muscat is Muscat Bay, a new ITC. It is cradled between two gorgeous cliffs, with a stunning view of the Gulf of Oman. It is close enough to Muscat to make it a viable option for people working in the capital, while still offering the peace and quiet of the coastal countryside.
However, I’ve been going to this development for many years now, and though there has been much progress and many units have been handed over, the pace of development has been very slow. I would not call it a failed development, it is not, but the units do appear to be overpriced, and a majority seem to be uninhabited.
Also, many of the apartments are quite dark and have a style that could quickly become passé. I wouldn’t invest there.
Jebel Sifah is located an hour away from Muscat, along a lovely little scenic road.
It’s a development that took some time to get off its feet, but which has become a success. It is a bit far for people to commute on a daily basis, but perfect for people who just need to get to Muscat 2-3 times per week. The development is along a picturesque beach, hosts a lively beach bar, a well-groomed golf course, and a pretty marina. It’s actually one of my favourite weekend getaways. Many long-term expats have bought apartments here.
The relatively low price points of some of the units in Jebel Sifah make it an attractive option – you can find studios on the golf course for about OMR45,000 ($117,000).
Crucially, Jebel Sifah allows short term rentals, unlike Al Mouj. This is key as it allows you to own property in Oman, get residency, spend a few months a year in your own property, and let it out the rest of the year. The weekend rental market for Omanis looking to escape Muscat is surprisingly vibrant.
However, the long-term market is stagnant, and liquidity for sales is low.
4.The real estate investment market in Oman
I have monitored the Oman real estate market for many years now, as I come here on a very regular basis. Since 2014 I have seen prices drop by about 30%, for both sales and rentals.
Much of the rental market is dominated by expatriates, and they are leaving in droves driven by government policy. Even though Omanis have great demographics (fertility rate of almost 3), it is not enough to compensate for the loss of expatriates in the rental market.
The government budget cuts will inevitably squeeze incomes and thus put more downside pressure on prices and rentals.
In addition, the market suffers from chronic oversupply.
In essence I don’t see any catalysts in the short to medium term for an increase in prices and/or rental values, and the risk of devaluation is present.
5. A concrete example of an apartment with full yield calculation breakdown
This 2-bedroom, 2-bathroom apartment is located in Al Mouj on the second floor with a gorgeous pool view. It is 125m2 and costs OMR120,000 ($312,000). It could probably be negotiated down to OMR 110,000 ($286,000).
|Price paid after negotiation down from OMR 120,000||OMR 110,000|
|Ministry of Housing tax – 3% of purchase price||OMR 3,300|
|Total price||OMR 113,300|
|Yearly gross rental income (OMR 550×12)||OMR 6,600|
|Vacancy rate of 10%||OMR 660|
|Rental tax of 5% (on OMR 5,940 once vacancy is removed)||OMR 297|
|Maintenance of 5%||OMR 330|
|Yearly home owners association charges paid by owner (OMR 75 x 12)||OMR 900|
|Tenant finder’s fee and property management (about 12% on base of OMR 5,940)||OMR 713|
|Total yearly net, net income||OMR 3,700|
|Net, net yield||3.2%|
In this video, my buyer’s agent Nicole and I walk you through a one-bedroom apartment and do a yield calculation, as well as discuss what people like about Oman. Watch the Youtube video here.
6. The Oman residency-by-investment and lifestyle play
I don’t see Oman as a pure real estate investment destination. However, much is to be said for the amazing lifestyle that the country offers, as well as for the benefits of being a resident of Oman thanks to real estate ownership. Making a real estate investment in an ITC in Oman entitles you and your family to residency in Oman, renewable every two years, as long as you own the property.
Oman is not Dubai. Don’t expect a flashy lifestyle with 90% expatriates.
Rather, expect to be immersed in local Omani culture. It’s not like Dubai where you rarely interact with locals. In Oman, you will be dealing with Omanis on a daily basis, in English as it is widely spoken.
Omanis are friendly, peaceful, relaxed, and respectful of people’s privacy. The country also boasts plentiful tourism potential, from lovely little wadis, to sand dunes, quaint villages in the mountains, and a stunning, unspoiled coast.
Cars are cheap, gas is subsidized, the road and highway network is world class .
It’s not for single people, and don’t expect the bar and club scene to even remotely compare to hedonistic Dubai. That said, it’s a great destination for families, and retired people. International schools are plentiful, and your children are less likely to end up worshiping money than if they grew up in Dubai. Oman also offers quality, affordable private healthcare.
Uniquely, Oman is a great base for perpetual travelers, investors, and businessmen who need a tax friendly base with a great airport. Live in Al Mouj, drive 10 minutes to the airport, and be on a Gulf-airline-quality flight to Asia, Europe, or Africa. Do note that Oman is likely to implement a personal income tax on high earners in the near future.
Conclusion: should you make a real estate investment in Oman?
Unless you live in Oman and want an easy investment you can manage yourself, I don’t see any catalysts for growth in the sector.
That said, I view buying real estate in Oman to obtain residency as a great option for four types of people:
- Young families who want to live in a peaceful environment respectful of traditional values
- Retired people who want to live in comfort, with good quality healthcare, and year-long sunshine. The cost of living is not cheap, but is much more affordable than in many parts of Western Europe. Also, hiring full-time help costs a fraction of what it would in Europe.
- Perpetual travelers who have interests in many countries and who need a base with great flight connections somewhere between Europe, Asia, and Africa. In many ways this region is at the center of it all.
- Affluent South Asians seeking a Plan B, or who wish to situate their family in a low-stress, peaceful and unpolluted environment, a quick flight away from back home.
If you want to get in touch with Nicole to discuss your options, feel free to drop her an email (email@example.com) and find out more about her here. She has lived in Oman for many years with her family, and is very knowledgeable. I have personally done business with her. She’s someone you’ll be very happy to deal with.
Once you are an owner, feel free to get in touch with Hussain. He’s my trusted Omani fixer who helps people obtain their residency papers and with anything government related. (Hussain’s WhatsApp +968 9424 8689).
If you want to read more such articles on other real estate markets in the world, go to the bottom of my International Real Estate Services page.
If you want to discuss your internationalization and diversification plans, book a consulting session* or send me an email.
*a consulting session is a discussion about your portfolio and objectives. It does not constitute legal, financial, tax or investment advice.