City report: Muscat
Yamurai Zendera looks at key projects underway in the Omani capital
There is a saying that there is no such thing as bad news, which is sometimes questionable. For instance, when a number of high-profile corruption trials – including one which saw the founder of the country’s biggest publicly-listed construction company, Galfar, sentenced to three years in jail – received widespread coverage across the region, it can be difficult to see the bright side.
But with the government determined to go on the front foot in weeding out corruption within and without its institutions, and more arrests expected, it is important to recognise the bigger picture – particularly in relation to the Sultanate’s construction industry.
Market analyst Ventures Middle East predicts that the Omani market is expected to witness a near-doubling in contracts awarded in 2014, from an estimated $6.96bn to $12.65bn. With this in mind, the reasoning behind the government’s desire for transparency becomes obvious.
Dr Hamed Hashim Al Dhahab, CEO of Al Watanyiah United Engineering & Contracting Co, describes the clampdown as a positive sign for the industry.
“There was a huge public discontent and people were not happy in general, the way the business was being done. This move from the government will ensure healthy competition and also improve transparency in the decisions making process.”
Oman’s commitment to upgrading its infrastructure shows no signs of slowing down, which can only be good news for the construction industry.
The increased spend is as a result of Omani government policy of steadily investing oil revenues on roadway and other infrastructure projects.
Under the most recent five-year economic plan, which runs to 2015, a total of $3.2bn (OR1.2bn) is allotted for road construction – the second-highest category for project spending after airports. In terms of total spending over the period, road investments will account for at least 3%.
Muscat is one of the key focuses of the government’s expansion plans, given that 50% of the country’s 3.1mn population is clustered between there and the Al Batinah coastal plain.
Efforts are being focused on improving transport infrastructure and alleviating congestion, which is exacerbated by freight traffic moving into and out of Sultan Qaboos Port in the heart of the city.
Big infrastructure projects moving closer to completion in Muscat this year include the new Muscat International Airport terminal and the Batinah Expressway. The former is expected to complete this year, with the project reaching the 70% stage last month.
Matthew Wright, an associate director at property consultants Cluttons, says the terminal will be a boon to the Sultanate’s tourism sector given that the existing airport has reached capacity and the government has made tourism a central pillar of its diversification strategy.
“In order to drive tourism growth you need a quick and efficient way of getting people from abroad in and out of the country,” he says. “It’s a positive step as tourism is a focus for the economy.”
He says the development of the nearby $1bn Oman Convention and Exhibition Centre, which is due for completion in 2016, complements the airport expansion. Just last week, the government floated a tender to build the main auditorium and other facilities.
“It’s a good fit,” he says. “Oman is spending a lot of money on the convention and exhibition centre and it makes perfect sense that international guests will want quick and easy access to and from it.”
As for the $2.6bn Batinah Expressway, arguably the country’s biggest road project, all six construction packages are now awarded. When complete in 2016, the eight-lane, 265km-long road will link Muscat to the new Sohar Port and industrial area, as well as the UAE border.
With the main contractors on board, the project has been feeding firms further down the supply chain. Infrastructure strengthening firm VSL is a subcontractor on package one, working on the soil walls for Galfar. The package covers an initial 45km stretch commencing where the Muscat Expressway ends in the Wilayat of Barka.
“We see further opportunities in Oman and this is one of the reasons why we opened a branch office over there last year,” says VSL deputy general manager Stephen Burke.
At Sultan Qaboos Port, freight operations will end in August and the site will eventually be turned into the country’s first cruise terminal as part of a huge regeneration of the waterfront.
Vedat Koca, Oman regional manager of Turkish contractor STFA, says it is keen to get involved in the redevelopment of the port, earmarked to receive holidaymakers in January 2015.
“Marine work is our core business so we’d be interested in that,” he says. “We are just monitoring the situation at the moment.”
STFA is already involved in some of Oman’s major infrastructure projects, including the $305mn Bidbid-Sur Road Project Section 1B, which Koca says is now 40% complete. It is carrying out the project in a 50/50 joint venture with Habtoor Leighton Group for the Ministry of Transport and Communications (MOTC). The target date for completion is the end of 2014.
Outside of marine work at the port, Koca says the main opportunities in Muscat exist in the buildings sector. SFTA has submitted pre-qualification documents to construct a new Royal Oman Police general hospital. It is also the lowest bidder on a Muscat Municipality project to build an interchange near to the airport. “If there is success, maybe we can go into other building projects,” says Koca.
Ventures Middle East estimates that the building sector took up the greatest share (37%) of the Oman construction industry budget totals last year, with the remainder being split between oil and gas (27%), infrastructure (18%), power and water (9%), industrial (6%), marine (2%) and pipeline (1%).
Meanwhile, Cluttons predicts there will be an acceleration of work in the retail and leisure sectors.
Wright points to projects such as Majid Al Futtaim Properties’ (MAF) $467mn Mall of Oman in the Bausher district, which will be the country’s largest shopping centre. Work will begin this year for a 2017 opening. MAF is also expanding existing malls Muscat City Centre and Qurum City Centre.
In addition, Muscat Grand Mall, owned by Al Madina Real Estate Company, is also undergoing expansion; while two new malls –Allied Real Estate’s Panorama Mall and Lulu’s Avenue Mall – will be built within the next 18 months.
“Some of these projects have been in gestation for a couple of years, so we see there being an interesting scenario in retail where there will be a significant addition to the retail mall space in Muscat in the next five years,” says Wright.
A similar trend is also occurring with hotels in Muscat, with Omran – the Oman government’s tourism development wing - spearheading the redevelopment of the existing InterContinental site in Shatti Al Qurum.
Last month, it was announced that a five-star W Hotel was to be the first of three Starwood Hotels and Resorts planned there. It is understood that the InterContinental will relocate to the Muscat Hills integrated tourism complex (ITC). While at The Wave, another ITC in the capital, a Kempinski hotel is being built for an opening in October 2015.
“There is now a very significant pipeline of upper sector hotels that are actually under construction at the moment or have a realistic chance of being delivered over the next three to five years,” says Wright. “So after several years of relative inactivity, that sector’s going to see a sudden acceleration.”
Since the opening of foreign investment in the real estate sector in 2006, Oman has been the region’s leader in ITCs, which now offer permanent residency to overseas investors.
Hamza Selim, CEO of Muriya, a joint venture between Orascom and Omran, which is developing an ITC near Muscat, says there is enough market demand to sustain these developments.
“If there were only Omani investors then I’d agree that there isn’t enough of a market, but we’re also seeing interest from Westerners as well as the Gulf.”
Wright doesn’t see Muscat experiencing the same sort of price rises in the residential property market as Dubai, where average rental and sales values grew by 22% last year. Average rental values for two bedroom apartments in prime locations like Shatti Al Qurum, for instance, only rose from around OMR750 ($1,948) to OMR800m ($2,078) per month from Q3 2012 to Q3 2013.
“What we are seeing in Muscat is that developments that are focused at the end user – are well thought through, well managed and are priced correctly – are showing a strengthening in terms of demand,” he says.
“There are a number of less well-considered buildings that don’t cater so well for their target market. And we see the values for those will generally continue to decline.”
He adds there is a gap in the market for compact two-to-three bedroom townhouses, particularly since a fall was recorded in employee housing allowances.
“Expatriate accommodation budgets are still below historic levels and this is sustaining the cost-conscious behaviour of tenants, while at the same time containing rental value growth.
“So one area within the residential sector we see as having strong potential is compound developments focused on providing more compact, efficient properties with some facilities.”