Oman's residential market to witness short-term supply glut in 2010

Substantial weekend and holiday homes purchases from investors in the UAE and GCC countries are expected to help reduce the risk of a boom-bust scenario

While the rest of the region's property markets preferred a turbo-charged strategy to development, Oman's approach was to go at a steady pace.

This had as much to do with the government's insistence on ensuring a sustainable rate of new developments as it did on the Omani's innate laidback nature.

But is Oman now ready to step up the pace a bit and don the mantle of a real estate hotspot?

"I wouldn't like to say if it's the next property hotspot or not, but I would certainly say it presents a good business model," notes Abid Junaid, Executive Director at ETA Star Properties. "That's why we have chosen to do a development there."

Mixed-use project
The Dubai-based developer has just put the finishing touches on a wide-ranging agreement with Oman Holdings International (OHI) for a $1.2 billion mixed-use project in Qurum, an upmarket locale in the centre of Muscat.

The 1,000 residential unit development will also feature offices and extensive retail opportunities. Construction is expected to take roughly 30 months to complete.

"The GCC property market is growing at breakneck speed and Oman is fast catching up," says Junaid.

"We believe it is an opportune time for us to enter Oman. We are confident that this project will not only be a landmark, but also reinforce Oman's reputation of becoming a significant international destination."

So far, demolition contracts have been awarded for the project and work will begin by the end of the year. The apartments and villas will be sold to both local and international investors.

Construction spree
The project adds to Oman's major developments currently under construction such as The Wave, Blue City and Salam Yiti - all residential - resorts which stand to benefit from large beachfront plots. The construction spree will see the delivery of around 10,300 units over the next five years.

The latest real estate report released by Colliers International predicts that assuming all these project are completed on time, Oman's residential market could be facing a short-term supply glut in 2010.

However, unlike neighbouring GCC countries, Oman is in the lucky position of being protected from a price correction, thanks to the large numbers of people who flock to invest in holiday homes in the area.

According to the report, "Assuming developments are completed to schedule, we anticipate a short-term supply glut in 2010, though we only expect a soft landing for the residential market, rather than a price correction.

"Investor profiles indicate substantial weekend and holiday homes purchases from investors in neighbouring markets in the UAE and other GCC countries, reducing the risk of a boom-bust scenario."

Even so, Oman still has a lot of catching up to do. "We believe that Oman is today what Dubai was four years ago," adds Junaid. "There's no doubt it will take off in the same way.

"Firstly, it has got the population base, and secondly, the same underlying fundamentals which were true for Dubai are also true for Oman. Oman has the oil surplus income and is investing heavily in tourism."

Cyclone Gonu impact
Indeed, its hospitality sector has managed to ride out the impact left by the destructive Cyclone Gonu last year.

The natural beauty, plus a concerted effort by the Ministry of Tourism to promote the country as a high-end cultural and eco-tourism experience, has raised visitor numbers since.

The Colliers report notes, "Robust hospitality performance has produced an unexpected investment surge in the sector."

Has ETA Star's timing on the Oman announcement anything to do with a possible impact on the UAE's real estate prospects by the global situation?

"Yes, investor sentiment is affected because of what is happening, but we believe that sentiment needs stability and there will be a correction and a change in the next six months as liquidity eases."

Influx of expatriates
"Strong economic activity has amplified domestic as well as foreign investments, leading to higher influxes of expatriate workers. As a result, the residential market is currently witnessing major supply deficits."

Excerpt from Colliers' MENA Real Estate Overview