The property game is now a minefield for developers and landlords alike. As more expats go home, there are fewer takers for fancy flats while shoppers’ pockets are shallower. Team Y investigates the reasons behind Oman’s empty apartment blocks and ‘ghost’ malls, and asks experts if hot property speculation is really now a matter of building castles in the sky.
Stretching as far as the eye can see are hundreds of villas, enormous buildings with the signature of a shopping mall or fancy hotel, parks that have been created with families in mind, and beachfront apartments for those seeking the ultimate seaside lifestyle.
The Blue City project in the Sultanate would have transformed the face of Barka – and essentially – the Sultanate.
But, from where we are standing, there’s just one barrier between us and the multi-billion-dollar project: a barbed wire fence that runs through the length of the city.
All of that’s not considering the even greater overriding obstacles it faced midway through its development: a cash crunch in 2010, corruption scandals, delays; and subsequently, a lack of interest from foreign investors.
Today, the sights of the project that once stole the limelight in the region’s media lies in the dark – and as the sun sets over it, it’s clear that the project will remain a sprawling empty space for some time to come, waiting for only one thing: people.
The fate of this US$20 billion-dollar (RO7.7bn) project continues to haunt the country to this day, and this ‘ghost city’ now foretells the greater struggles faced by both the government and investors alike as they face the future.
Not all failed projects across the country make international headlines or stand unfinished with grey walls and barbed fences around them, though. Some are finished in fancy attire, complete with neon lights and lavish retail outlets, and are open to the public – but they remain largely uninhabited.
Malls, residential complexes, hotels, and other projects alike – a simple stroll into the capital will reveal the extent to which investors are taking a hit.
And, while the reasons can span from anything from lack of demand to the oil crises of 2015 that the nation is still picking itself up from, experts are now concerned about whether the rate at which investments are going up are more detrimental to society and the economy than constructive.
A total of RO18bn worth of investments across infrastructure development and tourism is expected to be set in train until 2040 under the Oman Tourism Strategy – but not all of it is expected to have a positive impact; at least not with immediate effect.
The hasty arrival of new retail spaces in the form of malls, and the addition of new residential and commercial developments and hotels in the Sultanate is among the most prominent of worries, says Fahad al Kharusi, the business development manager of a leading bank and market expert, based in the Sultanate.
Expanding on the former, Fahad says more retailers are shutting up shop in malls than ever before to create what several are now calling, ‘ghost malls’ or ‘dead malls’.
“Simply walk into a mall in Baushar and you’ll realise how many retailers are struggling,” he explains.
“Several shops remain empty throughout the course of the day, and even the staff know that it is only a matter of time before they’re sent packing.”
The Wall Street Journal newspaper describes a dead mall or ghost mall as a shopping mall with a high vacancy rate or a low consumer traffic level, or one that is dated or deteriorating in some manner.
Fahad says: “The issue at hand is simple if you look at it from afar. There are lots of malls and very few people to fill them with, so you’re left with large retail spaces whose potential is squandered because of investors jumping into projects without any long-term projections or goals.
“Everything is done with quick returns in mind – and that’s the reason our retail spaces continue to struggle when compared with, say, similarly-sized malls in the UAE or even Qatar.
“It’s breaking the supply and demand chain. There are roughly 4.6million people in Oman currently, of which 1.8m people reside in Muscat. You’re essentially trying to cycle an even small number of people into these malls,” he adds.
“Even your sensible readers will know how these numbers aren’t enough to be spread along each of the malls that operate in the country. And with spending power abridged following the recession, it’s only natural to see fewer people take to the malls than ever before.”
Fahad believes that Oman was on the right track until 2014, when the retail bubble burst open for the better; thereby, spearheading newer players into the market.
“If you analyse the retail culture in Oman, you can see an upward trend beginning from 2004 up until 2014, but factors such as the recession have put a cap on that,” Fahad explains.
He’s right, as we learn from statistics revealed by the Alpen Capital, an investment banking advisory firm, that Oman’s retail sector has taken a hit, with growth slumping by 18.2 per cent between 2014 and 2016 – a period following the oil crisis.
But, that’s not all. Katie Watson, a real estate agent based in Muscat, believes that the effects of the oil crisis were further accentuated by careless planning, changing trends and an oversupply of retail spaces.
“To understand more about this,” Katie explains, “We need to focus on how the coming of mega-malls – retail spaces which can accommodate more than 1,000 outlets – has completely changed the face of shopping in Oman.
“These mega-malls cost developers equally mega price tags to build, and that has led to relatively tall rental rates, which eventually boils down to the consumer shelling more out from their pockets to cover the rental costs.
“This hurts the pockets of shoppers, who are already in discomfort following the recession of 2015.
“The residents of Oman – as have those around the world – have begun recognising this, because of which, there are fewer people heading to malls. And this has led to lower footfalls, and overall, a negative impact on these multi-Million-Riyal investments.”
Whether this is a contributing factor or not to the ‘temporary suspension’ of the construction of what was pegged to become Oman’s largest mall has yet to be seen, but experts such as Katie are confident that the end of mega-malls is near – as was seen in the US and countries across Europe following the upsurge of e-commerce and online shopping.
The owner of markeetex.com – an online store based in the Sultanate – Sharifa al Barami is one of the beneficiaries and benefactors of this trend. But, she sympathises with local mall developers despite her firm view on how such a scenario could have been avoided.
She says: “Several countries around the world are witnessing a shift from malls to online stores – it’s a tendency arising from growing needs. And it has more to do with the growth of technology and how it is impacting our lives in a positive way than anything else.
“Oman is still a good decade or so from completely moving away from the mall culture – that’s a fact I point out solely based on trends we’ve witnessed in the country.
“So, I would say that there’s still scope for it for now, but there’s a general lack of research that hinders any positive development in this sphere.
“If you look at Baushar’s landscape itself, there are several malls in close proximity to each other. There are four malls – of which two are highly established among the expat community – placed within a five-kilometre radius.
“Not only has that increased the competition, it has absolutely destroyed the market for several others – and it all comes down to inept planning.”
In fact, it is this very level of planning – or the lack of it – that is also hindering the development of the nation’s housing sector.
Katie says that she is among a clan of real estate agents who have been affected by the oil price crisis.
“Well, it’s all a circle, isn’t it (?)” she asks us. “Before the oil crisis struck down the region in 2015, the real estate market in the country was booming to a point where both residents and expats were confident in investing (renting and buying) in residential properties.
“This also led to the coming of several properties across the country. I understand that some of these [projects] were in the pipeline for up to five years but it’s the timing of their arrival, combined with the coming of newer projects that is completely demolishing stability in the market.
“It’s a clear case of oversupply – the demand-supply chain has been broken in this sector too, albeit, a bit lesser in extent than what we see in the retail sector,” she adds.
This has been proven by facts revealed by Hassan Mohammed Juma al Lawati, the chairman of the Oman Real Estate Association (ORA).
As per the official, the occupancy rate of residential buildings in the capital stand at 70 per cent and as low as 50 per cent in areas outside the capital – the lowest recorded in the Sultanate’s history.
In an interview with Y, a marketing specialist from Tibiaan Properties (who wishes to remain unnamed), points out another factor involved in this shift in market trend: the diminishing expat population.
She says: “The market may be at its worst state now, but it has to do with the drop in the number of expats who rent out property. As per our calculations, the drop is quite substantial too – with the numbers standing as low as 2.03m people in May, 2019 when compared with the 2.09m people from May, 2018.
“All of this corresponds to a falling market value for property.
Statistics revealed by the Muscat Municipality backs up her statement. They reveal that a staggering 25.2 per cent of the total rental contracts in the nation were cancelled in 2017, while the signing of new rental agreements slumped by seven per cent in the same year.
This has been extended into the hospitality sector, too. Our research shows that hotels show an occupancy rate of a mere 47 per cent, when compared with the 79.2 per cent in Dubai, UAE; and 61 per cent in Qatar.
Meanwhile, the number of projects – in both the housing and hospitality sectors – is increasing, albeit with less alacrity than in previous years.
The Muscat Municipality statistics show that 443 new projects – including buildings for both residential and commercial purposes – were given construction permissions in 2017. While this translates to a 14.9 per cent dip in the number of new approved projects, it’s still adding to Oman’s supply chain – and all for ‘demand that doesn’t exist’.
Salim al Zadjali, the owner of a 60-flat apartment block in the heart of Al Khuwair says that the arrival of new projects in the vicinity without careful forecasting has led to him losing over 80 per cent of his existing long-term tenants over the past three years, with current occupancy only standing at 38 per cent.
“The losses that I am bearing currently is hurting my business so much that it makes more sense for me to sell my building to another landlord and leave,” says the landlord of 22 years.
“Never have I experienced such turbulence in the property industry. The people just don’t want to spend money anymore, and those that can are afraid to do so.”
Oversupply and a volatile economy means that the total value of property traded (rentals and buying) in 2017 dropped to RO2.6bn, which is an astounding 61 per cent drop from values in 2016.
All this spells well for tenants, as per our research. Anyone interested in renting a 1BHK (bedroom, hall, kitchen) flat in Al Mouj will now only have to shell out between RO550 and RO640. This drops as low as RO310 per month for a 2BHK flat in Al Khoud, RO440 in Azaiba and RO400 in Baushar.
This also translates to drops of RO20 to RO100 from the rents recorded in 2018.
In an interview with Y, Suleiman al Amri, the director of Al Amri Real Estate Management, says: “Desertion is a mere stage between construction and inhabitation or footfall in a residential unit or a mall.
“Economists over the world compare Oman with more developed markets such as that of the UAE.
“But, the reality is that the Sultanate’s market has always responded differently. Take for instance, the recession that struck the UAE in 2007. It didn’t impact Oman as much. This allows for us to believe in our investments and developments.
While Suleiman remains hopeful, it must be pointed out that his company is building a 200-room residential complex in the industrial town of Al Mabelah.
“Sustainable development has always been a part of Oman’s existence. And even as we continue to invest heavily in projects, it’s all with the future set in our eyes,” he adds.
As encouraging as that sounds, it must be seen whether the empty homes and the stalled mall projects will indeed remain untouched to form the basis of the ghost cities that have been long associated with regions in China and Spain.
“Now, I don’t want to sound over-optimistic. Times are tough – it’s just how the market is. But, we’re currently juggling between falling behind and straying too far ahead.
“It’s a fine line.
“Yes, Oman has broken into what we call over-development. And, that’s not going to serve us well without a steady influx of foreign manpower and investors. So, our next step would be to relax the laws and open the market to have a stable population with strong purchasing power.
“It’s a far cry from today. But we must believe in knocking on all doors possible to see what serves us best. When one door closes another one opens.”
Suleiman’s response to Y is one that’s met with much disapproval by Fahad.
“Sustainable development is when a careful study has been made by the government and it implements a system that works in tandem with the private and public developers in the region; restricting oversupply while considering securing the future.
“Our current outlook is haphazard to say the least. We’re investing in new properties and projects more so than ever before – and the best example to explain this situation would be the very one that led to the oil crisis: oversupply.
“It did us no good, and it probably won’t either. Suleiman’s tale is quite an ambitious one, and it reminds us of the Sultanate’s greatest attempt at building a modern township back in the early 2000s: The Blue City.”