Residential property rents in the Omani capital Muscat are now 20 to 25 per cent lower than they were before the oil price collapse in 2014, according to a new report.
Real estate consultancy Cluttons said average residential rents declined 0.8 per cent in the 12 months to the end of September and by 0.2 per cent in Q3 to reach OMR690 ($1,792) a month.
However, rents in some areas were down significantly more over the 12 months including up to 10 per cent declines seen in Al Mouj and Muscat Hills.
“The last 12 months have seen relative stability bedding in across virtually all of the 12 main residential submarkets in the Omani capital which we monitor,” said Cluttons’ head of research Faisal Durrani.
“That said, our analysis shows that the premium residential locations across the city have seen the largest drops in rental values as tenant demand has increasingly focussed on more affordable locations and properties.”
Durrani said the decline since the oil price plunged from a high of $110 a barrel in Q3 2014 highlighted “how intrinsically intertwined Oman’s economy and property markets are with the performance of oil prices”.
Oman has been among the hardest hit countries in the Gulf by the oil price collapse. This year the country announced cut to government spending and fee hikes this year to reduce its deficit – estimated at OMR3bn $7.79bn) for 2017 – after cutting fuel subsidies in 2016.
The property market is expected to rebound next year as GDP growth recovers to an expected 5.2 per cent on the back of the start of natural gas production at the Khazzan gas field and the opening of the long-delayed new Muscat airport expansion.
However, Cluttons indicated there were also downside and upside risks to demand including the introduction of value added tax and changes to the country’s foreign investment law that could allow 100 per cent foreign ownership of companies in some sectors.
Durrani said Oman had yet to announce when it rill introduce the 5 per cent VAT rate agreed by the GCC states but the likely implications would be a spike in inflation, which could dent consumer confidence.
If the tax is applied to commercial sales and leases demand in the sector could weaken further from their record low levels, he said.
While applying the tax to buy-to-let properties like Saudi Arabia would have a similar impact.
“Given the current market dynamics, we believe the residential rental market in Muscat is likely to remain relatively stable for the remainder of 2017 with rents, on average, likely to end the year only marginally down on 2016,” Durrani said.
“We expect rents to stabilise over 2018 with the potential for only limited further downward corrections. However, we do not see any realistic prospect of rental value increases until at least 2019.”