Asset bubbles in Oman

The Oman Observer published a table of land prices in Muscat recently. The graph shows just how much the asset inflation bubble in Oman has taken off over the past few years, with land prices more than doubling in the past year alone.

The inflation in land prices has created a significant gulf between two groups of the Omani population: those who were fortunate enough or prescient enough to buy land and other real estate in 2005 or earlier, and those who didn't. Combined with the similar increases being seen now in building costs, there are many young and middle class Omanis who now struggle to get onto the housing ladder in Oman. As seen in many western countries over the past few years, the asset bubble has also been used to finance a huge boom in consumer spending; especially cars, education and holidays.

The resentment felt by many Omani who missed out on this boom is palpable, as not only did they not make hundreds of thousands of rials in property profits, they were at the same time hit by equally massive hikes in rents for the houses they were living in, hence the recent decree by HM to cap rents and plug the many loopholes for turfing people out of their accomodation.

Another effect of this boom has spurred many to speculate on the new estate developments in Oman, the Wave being a classic example, where the demand to put a deposit on a property has been overwhelming. The intent of this speculation is to place the small 5-10% deposit (usually with borrowed money) in the hope of then selling the as-yet-unbuild house on to someone else before the big payments are required. The returns for those who got into this game early were extreme, in excess of 1000%, as the Wave houses have for example more than doubled since the original phases were sold.

But clearly for some developments this boom may be starting to fade, as construction costs increase the original asking prices, and demand from the GCC citizens wanes in the face of more and more developments. Blue City recently talked of perhaps having to sell houses in discounted bulk lots to move enough of the off-plan villas and apartments to meet their bond commitments. Is this a sign that the bubble is starting to peak?

Hmmm. I hope the Government here takes note of the calamities evident in the US and UK recently, and acts to avoid a damaging collapse in prices and the subsequent problems for those speculating late in the game with borrowed money... But again with the retention of the fixed dollar link, its hard to see what they can do. Perhaps a large stamp duty placed on houses or land sold after less than a certain period would help calm the fever in the market?

Minister of Tourism Extends Her House onto Oil Company land?

A few of my contacts work at Petroleum Development Oman, the big pseudo-National oil and gas company in Oman. Talking over the amber nectar with them recently, they mentioned the big house extension being done in Qurm, right next to the Oil Company camp. Curiously, the house is being extended significantly into the PDO camp area land, and there was an issue with the construction crew working 24/7 and disturbing the residents nearby with their jack hammering and general banging.

The disturbing work going on at all times of the night has now been controlled, but the contractor apparently wasn't too keen to slow down the pace of work. Why? Because the house being extended belongs to Rajha bint Abdulameer bin Ali, the Omani Minister of Tourism .

There was some scuttlebutt from the PDO chaps about this somehow being related to the well advertised ambitions the Ministry of Tourism have to get their hands on the beautiful PDO prime real estate. Naturally, they want to build the usual few 5 star hotels and a massive housing development, golf course, etc. At present, the site is pretty sparsely populated with relatively old houses, occupied by the Expat and Senior Omani staff who work for PDO, which is handily situated just around the corner from the camp. [By the way, the low density, the sidewalks, and the generally more careful driving attitude is perhaps why it is one of the few residential areas in Muscat that is safe and pleasant for an evening stroll, safe for kids to play in, OK for bicycles, etc]. Anyhow, the land has always been owned by the Government, while the Oil Company just has an exclusive license to use it.

There doesn't seem to be any truth what-so-ever to this rumored connection to the MoT redevelopment plans, however, nor to the fact that Rajha is a Minister.

Dragon can reveal the Minister actually obtained the land some 10+ years ago, when she was not a Minister, and long before it was valued at some 1000+ rials per square m. She has owned the house for a long time, and I guess has always wanted to extend.

Interestingly, at the time Her Excellency got permission to take the land, she was a member of PDO’s Board of Directors, and just a humble Undersecretary at the Ministry of National Economy.

So that’s all right then.