Tuesday, 30 May 2023 04:54 GMT

REIT funds to boost Oman's real estate sector

(MENAFN- Muscat Daily) Muscat- Al Habib & Co is the largest and only one-stop-shop for the complete range of real estate products and services in Oman. In an exclusive interview with Muscat Daily, M Sudhakar Reddy, chief executive officer of the company, talked about trends in Oman's real estate market in 2018 and how the launch of real estate investment trusts (REITs) will impact Oman's property market in future.

Oman's economy witnessed a slowdown in past two years but with recovery in oil prices many people are expecting 2018 to be a better year. What are your views?

We are expecting 2018 to be a much better year than 2017 as consumer confidence is returning to the market. Now people have begun spending again and are ready to invest also. Things are improving. The real GDP growth in 2018 is expected to be around three per cent, which is very good considering the present situation and at the same time nominal GDP growth is going to be much higher.

The government has been prudently managing its finances by borrowing when oil prices are low and building reserves when oil prices are high. The government has managed the sharp drop in oil prices very well and since oil prices have improved we can expect a better year ahead.

A steep correction in rentals have taken place in some areas due to oversupply and host of other factors, do you see this trend continuing in 2018 also?

In prime areas such as Qurm, Ghubra and Al Khuwair there is no scope for reduction in rentals rather these areas could witness increase in rentals. There is a likelihood of rentals stabilising in outlying areas of Muscat such as Mabela, Amerat and Al Khoud. In these outlying areas, rents are under pressure.

Despite of the fact that many offices from CBD and MBD areas have shifted to other locations, areas such as CBD and Ruwi are still very popular among expatriates. Rents haven't dropped here much compared to Amerat and Mabela. Rents have fallen in the outlying areas but the main reason for this is not depressed economic sentiments, rather it is higher supply compared to weaker demand. I see a decline in rentals but there could be some stabilising of rents in these areas. If you travel to these locations, you can see much construction taking places as planning and construction of these started a couple of years ago, and they are entering the market now.

So according to you, there could be some pressure on rentals or there is hope for recovery also?

Hopefully things will stabilise in these areas in 2018. Prime areas starting from Al Khuwair to Airport are likely to see maximum appreciation as the city is moving in that direction. You can see many malls, restaurants, and other social infrastructure coming up there. Moreover, areas such as Ruwi are still popular among expatriates. They prefer to live in these areas because of proximity to schools, restaurants and markets. So rents in these areas have not dropped much. In case of Mabela, presence of the Indian school has also helped in stabilising rents as some prefer to stay near schools so that they don't have to travel much.

How do you expect your other businesses to fare this year, considering that government is unlikely to award any new major construction project this year?

The construction sector is passing through a difficult phase. Contracting business is also facing lots of difficulties and they are struggling. It (contracting business) is going to remain under pressure for next few years as planned investments are lower. This is because of weaker sentiment and a drop in demand. Also, the sharp rise in interest rates has eroded the feasibility of some real estate projects. However, I expect things to improve as the government is pushing for tourism infrastructure. The number of hotels that are coming up is amazing.

The Capital Market Authority recently issued detailed guidelines for establishing REIT funds in Oman. How will this development impact Oman's real estate market?

This is a very good development for the real estate sector in Oman. It is one of the things that was discussed and promised during Tanfeedh. It will throw tremendous opportunity for people like us and also for smaller investors. REIT would basically be a fund dedicated for investment in the real estate sector and in which small investors can also take part. There are some guidelines to safeguard the interests of and protect small investors. When investors can only invest directly and own properties, investments tend to be lumpy. The minimum investment may be over RO50,000 and there is risk because the entire investment is in one property.

How will it benefit a small investor as an individual can avail bank finance to purchase property, which would give him rental as well as appreciation? So what difference will it make?

Normally, if a person purchases even a small flat he has to spend around RO50,0000-RO60,000 whereas for villas and other properties he has to spend around RO100,000. Investors want rental yields and capital appreciation. But if due to some reason, the property is not rented out, rental yields could be much lower and the property value could decline. But with REIT, he will be able to purchase a very small number of units. And as the fund size is large, for example RO20mn or even bigger, it will be able to purchase a number of properties. The risks get spread for the small investor and he or she gets very professional and quality management for the property. In addition property is an illiquid asset meaning selling a property is not as easy as selling a share. Units in REITs will be traded just like shares in listed companies and small investors will have easy exit.

Will REIT funds also help organised players in the real estate sector, or it will be problematic for them in future?

The biggest benefit from REIT would be that it will make the whole industry more professional. REIT would be answerable to its unit holders so they would be very careful while buying a property, and would seek many details such as whether it is the right location, right price, will it give rental yields, or is it going to be a right investment. It will give tremendous boost to us because, once REIT is formed, they will need professional property managers like us to manage their units. This will also present selling opportunities for us as they (REIT) would look for quality properties to invest in. When an individual owner buys a property, he normally doesn't use professional property valuation services. While a professionally managed fund would look for quality services from a professional property valuer. So REIT, I think, would surely give a boost to our business and to the whole sector.



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