Transparency in real estate

Real Estate, to use, an economists technical term, is not a perfect market. Whereas a barrel of oil is identical to the next barrel of oil, a piece of real estate is usually different from another piece of real estate, even in the same location. This imperfection means that there are mispriced real estate assets and experienced and smart real estate investors pounce on these. This also means that real estate markets are opaque. Home buyers, who usually are not real estate experts, often overpay and mortgage lenders carry far more risk than they should be, due to mispricing of real estate assets. The goal of government policy must be to reduce the opacity and make real estate markets more transparent. 

Governments in advanced Countries have achieved this to a large extent by putting out as much information as possible in the public domain (usually through the internet). This information usually pertains to sizes and prices at which each piece of real estate has been transacted in the past. Valuation experts, in these countries, have access to transaction prices in a given location and so can use the comparables method, which is the only reliable method for most single unit real estate, after adjusting for differences between each piece of real estate. Therefore, home buyers can confidently buy without worrying about over paying and mortgage lenders can lend without carrying undue risks. The data put out by the Governments in developed countries is reliable and uncorrupted. 

In developing countries, markets are very opaque and one cannot buy with a degree of confidence although the internet is enabling more access to data even in these countries. However, this data is not very reliable, as it is not actual transaction prices. In addition, transaction costs are high in developing countries, and this leads market players to understate transaction prices and thus the data is corrupted. In the absence of information, undue reliance is placed on valuation experts in developing countries, who themselves are working in the dark as the only information they have available is through informal channels. 

Oman will be better served if the Government publishes, on the internet, all transactions. Oman also will be better served if it reduces or eliminates transaction fees so that prices are not understated. Alternately, if the Government fears loss of revenue, it could shift the fees to fixed amount per sq meter, instead of ad valorem rates. These rates could depend on zoning and location and could be periodically revised depending on the movement of prices in the real estate market. India has done this and thus eliminated chances of loss of revenue by way of lower real estate transaction fees. 

The Government needs to work with real estate professionals and investors in making the market more transparent, thus benefiting society at large, since, for most citizens, the home they live in is probably the biggest asset they own.

Real Estate Report

Real Estate report

February 2017

Overview

Real estate performance is a function of the overall performance of the economy and therefore, we need to look at the macro picture of the Oman economy to understand performance of the real estate sector so far and to forecast what is going to happen in future. Real estate mortgage and real estate as collateral is a large part of the banking sector and the overall stability of the banking and financial system is dependent on the performance of the real estate sector.

The most significant economic event of 2016 has been the further plunge in oil prices to levels not seen in the last 12 years. The economy which had shrunk by over 15% in 2015 has shrunk by about a further 7% in 2016. The government of Oman had run a large budget deficit of about RO 4.500 billion in 2015 and this has increased to RO 5.2 billion in 2016. 

This is over 15% of GDP which is unsustainable. The government is borrowing to fund the deficit and national debt has gone up to over 25% of GDP. The government has no choice but to cut expenditure and it has done that by about RO 3 billion per annum between 2014 & 2016. This is extremely painful but necessary. The government is now relying on the private sector to grow the economy and create employment.

The government has increased taxes from 3% to 5% both in the case of leases and sale & purchase. This has added costs and dampened the already weak real estate market. Real transactions have dropped 24.3% from RO 1.356 billion to RO 1.027 billion. Real estate has been effected by this economic downturn and the market is feeling some pain.

Employment

Employment is the biggest generator of demand for housing both for buying and renting. The total number of employees in Oman is as follows.

It can be seen that the private sector is a major employer and the number of employees in the private sector has been growing rapidly as the numbers below show.

However, the number of well-educated expats has dropped in 2016. These are the ones who are likely to rent apartments and villas and this decline in their numbers has put enormous pressure on rents. One must note that supply has been increasing since most of the projects being delivered now were started when the real estate market rental yields were very attractive in 2014 & 2015. We expect a major slowdown or even a decline in the number of jobs in the private sector unless oil prices rebound. This may lead to higher vacancy, lower rents and lower property prices although it is highly unlikely that prices will drop as dramatically as oil prices. We believe that the maximum downside in completed buildings is about 25% and in plot prices about 35%.

Inflation/Deflation in construction costs

Unlike in the 2008 crash, real estate is not in bubble territory at the moment and any decline in prices will be orderly. The cost of construction has not declined sharply. The Omani Rial has strengthen due to the US dollar appreciating. However overall cost of construction has not gone down significantly. In the case of some of the locally produced construction materials like cement, concrete, aggregate etc, prices have remained static due to weak demand although costs have gone up owing to gas & fuel price deregulation and changes in transportation and other regulations. Some of the finishing items which are imported from countries other than the USA have seen a slight decline. In Oman, the cost of land varies from about 30% in Muscat to about 10% in the small towns in the interior. This means that there will be only a manageable decline in real estate going forward even if plot prices go down significantly.

Office space rents

With a declining economy there has been weak demand for office space. However, the office space segment is small compared to the residential segment and there has been too much supply with the result that absorption rates are slow with it taking two to three years to fill up a building. The city has been shifting away from the CBD/Ruwi areas and rents in these areas have corrected significantly. Going rates in CBD are as low as RO 3.000 per sq. m per month and vacancy levels are high. We can say these properties are financially under pressure. Rents are higher from Qurum towards Seeb. However even these have dipped and some of the Grade A office space in prime locations has fallen below RO 7/- per sq. m per month. We are aware that one major tenant has leased 12,000 sq. m of Grade A office space in Al Khuwair at RO 5.500 per sq. m per month.

Car park is a major challenge. Although, the municipality rules, that have come in to force in the last 5 years or so, stipulate that there should be at least one car park for every 50 sq. m of leasable area, the actual requirement is more like twice the number. Given that land is expensive, it is simply not feasible for a developer to provide this car park ratio. Public transport in Muscat is limited and car-pooling is not prevalent with the result that even whichever Grade A office space you take, car park is inadequate. There has been a move to mechanized car parks to improve car park ratio and it remains to be seen how well this works in practice.

Office Space Sale

A recent and very new trend is that small businesses are buying office space in lots from 100 sq. m to 1,000/- sq. m. This market is very limited but the margins that developers enjoy are very high at the moment and it remains to be seen if these are sustainable. Going prices range from RO 600/- per sq. m to RO 950/- per sq. m. Some of the developers are selling car parks that go with the property. There are only about five properties that are using this model.

Rents in the Residential Sector

Rents are underpinned by employment numbers of educated expats. We have seen these numbers declining while supply is increasing. Thus rents are down in apartments and villas and occupancies have dropped by about 5% 

in prime locations and by more than 20% in the outlying areas of Amerat & Mabelah. Our data base of over 4,000 apartments under management show the percentage decline in rents of apartments in various locations.

Within the residential apartment sector, rents have dropped less for newer high quality properties compared to the older poorer quality properties.

Villas have witnessed an even steeper decline with average rents declining by 15 to 20%. Here again the worst hit are the older standalone villas. The newer villas in compounds with facilities like gyms and pools are less affected although even here rents have dropped by about 10%.

Rents in the retail sector

Owing to the slowdown, retailers are facing a decline in sales and this is forcing them to negotiate lower and lower rents. According to published statistics, retailers have seen sales decline by about 18% and this is a huge drop. Our own meetings with retailers indicate that sales are down about 20% in the value offer segment and by more than 30% in the meduim and high end brands segment. This is also corroborated by new vehicle registrations, which are down by about 11% from an already low base in 2015.

The newer retail centers are offering long rent free periods and lower rents. Feasibility which the new malls did at over R 25/- per sq. m per month are being leased at around RO 15/- per sq. m per month for shops of around 100 sq. m. Some of the new malls are earning poor returns and Banks which have exposure to new malls may like to be cautious.

Property Prices

With the decline in rents by about 8% and with the gross yields remaining static at 10%, investment property prices in the residential and commercial/residential segment have declined by about 8%. We see further declines going forward.

In the case of residential villas, it is hard to gauge the drop, since these are thinly traded. Most villas are for self-use.

Demand for mortgages for self-occupied villas will continue as well educated Omanis take white collar jobs. However, these mortgages are backed by salaried income usually and mortgages are not a real security. In any case, if too many villas came on to the market, prices would drop and selling will be difficult even at these lower prices.

For more details:

M.Sudhakar Reddy, Chief Executive Officer

Tel:+968 24864993

Fax:+968 24703666

Mobil:+968 99333427

Email:info@alhabib.om

Iftar at park Inn on 23.08.2011

WORLD ENVIRONMENT DAY on 5th June

World Envirument Day(WED) is the second event that is celebrated all around the world .People from various countries are celebrating this differently each upon it's traditional and cultural way.

AL-Habib has celebrated the world Envirument Day on June 2011 to stimulates awareness of the envirument and encourages the attention and action which was participated by the company management.

Road to Excellence Seminar at Al Bustan Palace Hotel

Al Habib Staff has conducted a seminar on "Road to excellence" which was held on 24/05/2011 at AL Bustan palace hotel and was addressed by Dr. Ibrahim Al Fiqi.

Al Habib looking for talented Omanis

Al Habib is in search of qualified Omanis to fulfill several positions in the company's various activities.

Qurum Star Project

Qurum star is Al Habib's latest project. It is located in Qurum, off of Seih Al Maleh Street. The project is closley located to the lively Qurum Shopping area, and has easy access to highways.

The project will have a total built-up area of 8100 SQM, and consists of 54 Apartments that will be offered for rent:

• 48 2 Bedroom apartments
• 6 1 Bedroom apartmnts
  

The project is expected to be complete in December 2011.

October -2010 QHSE Events-First Aid Training

Beat Diabetes Walk on Friday 12.11.10

World Diabetes Day(WDD) is celebrated every year on November 14 to mark the birthday of Frederick Banting who, along with Charles Best, first conceived the idea which led to the discovery of insulin in 1922.

The world Diabetes day campaign is led by the International Diabetes Federation (IDF) and its member associations. It engages millions of people worldwide in diabetes advocacy and awareness .The campaign draws attention to issues of paramount importance to the diabetes world and keeps diabetes firmly in the public spotlight .This year sees the second of a five year campaign that will address the growing need for diabetes education and prevention programmers.

Alhabib’s chairman and some staffs participate the diabetes day walk

3rd Quarter Safety Rewards & Recognition Award Campaign (July -Sep)2010

Best Team Masons-Project Div

Best Operator-Individual

Scaffolding Team 2010

HR Meeting Sites on Oct 2010

NLP Course in Park Inn Hotel on 27-09-10

NLP course which held in Park Inn Hotel for the Managers to apply new leadership skills and achieve more success at work

Blood Donation Campaign on 10.10.2010

As part of our responsible Business Social activities,we have invited the Blood Transfusion Team,Department of Blood services,Ministry of the Health to come to our Office on Sunday 10.10.2010 to conduct a Blood Donation Session for the Staff.

Bowling day at Al Masa Mall on 21.09.10

New Employee in Alhabib &Co (Ali Minawer) on 28/09/2010

A dinner was held for the staff at Park Inn Hotel(RBG Restaurant)

On 1st September 2010, adinner was held for the staff at Park Inn Hotel(RBG Restaurant) in which head office of Ghala Branches staff attended .This is to improve and increase networking among Alhabib & Co staff.

Second Quarter Safety Reward April-June 2010

Safety Skit

Individual Performance

Defensive Driving

Best Safety Team

Best Garden Camp

Best Safety Mans

As part of Al Habib's commitment to the safety and well being of operation and employees, the company holds quarterly safety awards. The awards were given by the company's General Manager, Mr Sudhakar Reddy at Ghala employee camp.