While some noted that one can be financially secure, sit back and relax, others doubted whether it was wise to invest in the property market at this point in time as the market is saturated. The truth is that those of us who were the most animated in the discussion couldn’t even buy a motorcycle if we wanted to. But this is a sensitive area worth looking into with an informed eye given its centrality in the overall economy of our country.
Is there a property oversupply in the sultanate and if so in which sectors (commercial, residential, or industrial?) and in which areas, Ma’abela, Adam or Salalah? In case there is oversupply, is it a transient phenomenon or is it here to stay for a while? Is it a property market crisis?
The answer to the last question is a big NO. There is no property market crisis. In fact, there could be great opportunities if the current situation is wisely exploited.
Before attempting to answer the other questions, let’s assess the impact of property oversupply to the property sector stakeholders. The direct stakeholders are the investors, the banks, property sector practitioners, tenants and the economy at large.
In case of property market oversupply, the main winners are potential property buyers or renters. The rest are impacted negatively to varying degrees. For the investor, when prices go down their expected profits are reduced and the ability to service their debts is significantly compromised.
When borrowers are unable to pay back their loan installments banks suffer and resources that could have been used to stimulate other areas of the economy are essentially frozen in brick and steel. The economy gets impacted in chain reactions that are too many and too complicated to be covered here.
Real estate reports by various consultancy companies do confirm that in the past few years there has indeed been an oversupply of properties which has pushed prices down. The problem with these reports is that they provide little and reactionary information that is basically ill-timed. Of what benefit are those reports to me after having invested a million or two million rials in purchasing or developing a property?
The obvious question that presents itself is: Where do they get the raw data to arrive at those conclusions and what is the size of the sample they use? Are they being academic or practical? How come they missed the opportunity to warn stakeholders (including the government) before we reached this point? They do appear to be self-serving and questionable points of reference.
Reliable information comes from real data that must take into account many factors. An investor in the property market needs to know the supply and demand of a given type of property in any given area. There could be shortages of office building in Ma’abela while in Salalah the shortage is in residential buildings. There is a possibility of oversupply of apartment units while there could be a shortage of villas.
When comprehensive data is available and transparent, investors will be able to make informed decisions.
The government has done a great job in regulating the housing and property market in general. Oman is a country where most of the properties are registered. In which case, data is already available. What needs to be done is to have a body whose main job is property-related data collection, organisation and distribution.
I am presuming data is not there because I haven’t seen it anywhere and because if it was available, investors and banks would have been more calculated in their actions. In a sense, availability of reliable information in the property market goes a long way in helping the sector self-regulate and then the government can monitor from afar.
Normally, you would allow supply and demand to determine the direction but given the criticality of the property market, governments regulate it fully in order to avoid and block whimsical investments.
The sheer size of the funds involved makes government intervention critical. That intervention is primarily making available data that is scientifically-analysed and presented in a user-friendly and timely fashion.
Accurate market data would take into account factors such as: uSupply of units per category and per geographical area. Supply must also include already approved units that will soon enter the market uDemand (local population, employment, tourism, etc) uCurrent sale and rent costs categorised by type (residential, office, industrial, showrooms, etc)
Any information that facilitate informed decisions by stakeholders is also critical. The desired outcome is a situation where all participants - lenders, investors, tenants or potential buyers, property consultants and government - in the property market are fully informed and can make informed decisions.
As mentioned, the good news is that data is already available at such entities as municipality, ministry of housing and statistical authority. It just needs to be consolidated, organised, dissected and presented in such a way as to meet the information and needs of different stakeholders involved.
Another good news is that oversupply of property (if it is indeed the case) could be an opportunity for the government to make huge steps to fix the housing challenge for years to come.
Some of the excess properties could gradually be incorporated into the national housing scheme. In those cases where investors are unable to service their debts, the government could make some deals with bankers to acquire the related properties at favourable prices and terms whereby losses are minimised, bank liquidity is strengthened and the housing problem for citizens is solved. In Oman, foreclosures and bank re-acquisitions are simply not the ideal solution.