Downside Risk Mounts for Muscat's Residential Market
According to international property consultant Cluttons, after five consecutive quarters of stability in the residential lettings market, rents across Muscat dipped slightly during Q3 2015. However the volume of tenant requirements has continued to hold steady, with demand remaining centered on what are perceived to be high quality, well managed properties.
Philip Paul, Cluttons' country head of Oman said, "While average rents may be dipping across some parts of the city we are seeing an encouraging emphasis on quality, with steady tenant demand for buildings which are well managed and maintained to a high standard."
According to the report the primary driver behind the slide in rents in some areas has been the sharp supply upturn in what is considered to be lower quality stock which is undermining rents across several submarkets.
Paul commented, "High quality schemes have seen rental values holding steady, with some even creeping upwards slightly. The Saud Bahwan complex is as an example of a development that remains fully let, with a long waiting list, underpinned by more affordable monthly rents, which range from OMR 550 to 625 for two-bedroom apartments. We anticipate similar high interest in the Public Authority for Social Housing's Al Taminat residential scheme in Bausher, which is due to complete later this year."
The report highlights that the focus on higher quality schemes is demonstrated by the fact that vacancy rates in Muscat's two main ITCs - Al Mouj and Muscat Hills - remain exceptionally low due to their appealing modern amenities.
Faisal Durrani, Head of research at Cluttons also explained, "Although prevalent across the rest of the GCC, gated community living is still a relatively new concept to Oman, but the depth of demand from tenants, both expats and increasingly the younger Omani generation seeking out gated living in rising numbers, continues to remain strong."
According to Cluttons the property market as a whole is being supported by the relative stability in job creation levels in the Sultanate as it continues to boost oil production to inject confidence into the economy, which has also been bolstered by the government's infrastructure upgrade program.
Durrani added, "Despite the global slowdown, economic growth is expected to continue, albeit at a slower pace than 2014. Residential rents should remain fairly stable over the next six months, with poorer quality pockets of stock underperforming. This course assumes the absence of any major global economic or oil price shocks over four forecasting horizon."
The sales market on the whole continues to remain very active with developers keen to capitalize on demand by bringing new schemes to market. According to Cluttons, anecdotal evidence suggests that mortgage lending continues to tick upwards with demand coming from GCC nationals and Omani buyers.
Paul continues, "We are seeing rising numbers of buyers from the wider region such as Syrian, Iranian and Iraqi buyers who are securing homes in the Sultanate, drawn in by the prospect of permanent residency and the allure of a relatively small and stable residential market. Typical budgets from this pool of buyers range from OMR 130,000 to OMR 150,000. While supply levels are continuing to edge upwards, demand is remaining fairly constant and we will be monitoring price changes closely. For now, it is our view that the rate of capital value rises is likely to slow between now and the spring.'