By Daniel Al Said
I casually consulted a number of British and Omani economists in recent weeks out of sheer bewilderment, as I have no formal education in said area and thought I was perhaps overlooking something in my review of the Omani housing market. I believe there is a far bigger problem than the announced ‘rental crisis’ with significant economic liability stemming from real estate investments.
Each day in the capital city we see an abundance of vacant properties surrounded by an endless range of new developments under construction (the essence of the rental crisis). Thus, I ask:
“Why are investors being given permission to continue developing real estate that will compound the existing issue and introduce a broader range of socioeconomic consequences as a result of drastic oversupply?”
1) Oman is reducing the number of expatriates in its population as it localizes the national workforce. This is a problem because expatriates rent far more than Omanis, as there is little choice in the matter for 99% of non-native folk. The National Centre for Statistics and Information (NCSI) confirmed the ongoing decline of expatriates noting 43,000 departures in early 2018 alone.
2) Omanis don’t rent in comparison because they are entitled to land and properties are handed down through the generations. Local culture further dictates that Omanis live at home until they are adults in their mid-twenties, even after they are married, if they get married and are able to afford their own space (unemployment is a relevant issue, and a significant decline in those getting married was recently noted by the Times of Oman).
In reference to what has become a drastic oversupply I have heard the response, ‘but the native population is growing’. Whilst that is true it is absolutely irrelevant, primarily because over 50% of Omanis are under 25 years old, with the majority having yet to even hit puberty – unless 10 year olds are now moving out of the family home in search of rental agreements (ref: NCSI).
The Current Impact of Local Investments
By encouraging the Omani market’s limited understanding of investment opportunities towards the development of real estate the respective authorities are ensuring economic loss and an impact that goes beyond the existing rental crisis. Investors and landlords have already begun to default on loans and are failing to meet other financial commitments. I have been told first-hand they are struggling with their families, amongst a host of other socioeconomic consequences. The economic impact of failing to acquire tenants is the starting point of a macroeconomic ripple effect, as nothing will change based on the continued allowance of real estate development in the capital city. There is one exception, and that relates to the investors who have enough money to ‘throw down’ without any requirement of financial returns in the short or mid-term.
Even though some landlords have lowered their expectations with rental margins to achieve a respectable rate of occupancy the financial fallout remains a reality for many. In my opinion this is partly due to a lack of preparation. Even amidst the regional oil crisis Omanis proved that they were oblivious to fundamental economic realities, as per the national media survey’s results in 2017 (published across all English language newspapers). The continued and excessive development of real estate amidst a rental crisis only proves the point and within the respective context.
In their defense Omani investors are less equipped than those living in markets where the media, to name one resource, is not controlled in the same way it is in the respective market and investors are able to research and gather objective and reliable market intelligence. Under the circumstances I suggest that those wishing to invest in realty should explore Danube’s strategy in Dubai. That would provide affordable market options which fall in-line with Oman’s structured demographic changes. Danube’s approach would diversify the market and provide viable economic prospects.
Misguided investments in the US housing market quickly became a primary cause of the World Financial Crisis in 2008, albeit for different reasons. The impact of bad decisions with housing markets on a national scale has a notable history within the field of economics over the last 80 years, thus a more holistic review of data clearly needs to be done in Oman as its economic state remains defined by fragility and of great concern.