Ready but steady

The quietest capital of the GCC may have weathered the financial storm

Oman is looking to grow form a steady base.
Oman is looking to grow form a steady base.

Construction in Muscat and its surroundings has been a microcosm for the Gulf region. Familiar stories of a drought in financial support one end, and buyers unwilling to purchase properties prior to completion at the other, have been a headache for some developing around the capital’s region. But with a more modest boom and bust than Gulf rivals, the capital looks set to squeeze through more completions in the next year.

Ibrahim Alhosni, investment manager at Omran, the government-owned tourism, investment and development company, said the city – like the country – takes a similar cautious approach as Abu Dhabi.

“We’re going from a steady base, making calculated investments based on analysis.”

He added that there remained a strong bi-partite link between the public and private sectors. “There’s a huge involvement [from the private sector], the two work hand in hand,” adding that the government infrastructure projects help the private sector, so that the private sector can lend their expertise to further projects down the line.

First, the good news. Economic growth and capital investment has been overall buoyed by the returns from oil, which in 2009 increased from around US $35 to $75 per barrel. Then a decision by the government last year to grant two-year visas to expatriates, which can be renewed, started to filter through to an increase in house purchases, followed by a rise in prices.

The capital is now at the centre of ongoing construction projects that total RO104.6 billion. So far only RO6.5 billion has been put on hold.

The Wave, a joint venture between Majid al Futtaim and the Omani government to develop a set of white villas running along the coast, saw the benefits of the visa change and oil rise last month.

At the beginning of April it was announced that the company was to launch its first sales drive since August 2008 and has sold 140 of 168 apartments. This was enhanced by a canny decision 18 months ago to change the project’s plans from building luxury villas to more affordable apartments. Almost half the buyers are Omanis, with the other buyers comprising of 38 nationalities, mainly from India and the UK.

Michael Lenarduzzi, The Wave CEO, said that though the company has started to hand over apartments in the Qarat Al Marsa district, other apartments in the same district have not been built yet.

“The floor plan of apartments has been modified and enhanced based on the feedback we received from previous apartment owners and also to consider pricing and market demand,” he said.

Carillion Alawi and Al Turki are among the local contractors with which The Wave is doing business. The expansion to the Muscat airport – tendered last year with construction started – is also ticking over.

The RO462 million (US $1.2 billion) project hired two big hitters in consulting from outside the GCC, Turkish firm TAV and Greece-headquartered Consolidated Contracting Company, but they are making their presence felt in the region.

The project calls for expansion of the airport, partly driven to the increase in visitors. The first phase is due for completion in the third quarter 2012, though Ryan Wilson, project manager at CCC, declined to specify the exact progress of the project.

But some of the other mega projects are hanging as albatrosses around the neck of the city’s region.

Blue City – a 20-year venture situated less than an hour from Muscat that was to comprise schools, apartments, villas and recreation areas for the burgeoning commuter belt – is widely deemed to have collapsed because of a lack of sales.

The board of Al Sawadi Investment and Tourism Company, the parent company of the project, sent out a notice in February calling for investors to vote on the ‘dissolution of the company and filing subsidiaries’.

Moody’s Investors Service, which rates the bonds issued by Blue City to fund construction, said that as of November last year, Blue City had sales of US$74.6 million – less than a tenth of its $860 million target.

Similarly, Salam Yiti, an RO770 million resort project coordinated by Omran, the government-owned tourism developer, and Sama Dubai, has stalled completely.

A spokesperson for Omran said: “In terms of project development it is still on hold and has been so for the last year, due to the financial crisis.”

Wael Lawati, CEO of Omran, told journalists earlier this month that the two parties were in discussions about how to move the project forward – and if those talks break down, Omran may have to find a new partner to finish the project, he said.

The spokesperson denied to CW that there were any problems with their relationship with Sama Dubai and said there were no new partners involved. Ibrahim Alhosni, Omran’s investment manager who coordinates partnerships, refused to comment.

The scope of material suppliers to Muscat projects may soon change greatly, based on circumstances in surrounding countries. Hattish Kumar, senior financial analyst for Global Investment House in Kuwait, points out that the overall slump in construction in the UAE may cause many suppliers in the country to sell into Oman, to chase slipping profits.

“The prices between UAE and Oman are very similar, meaning that there will be very little margin in selling into the country,” he says.

The two leading cement producers have both cited this enhanced competition for a dip in recent profits and sales.

Kumar adds that as long as the country overall meets the expectation of a 94% completion rate for projects, the future looks good for Muscat-based suppliers.

Oman Cement Company saw net income rose RO 7.1 million for the first three months of 2010 against the end of 2009, although this resulted in a 2.8% reduction in net profits. Falls in sales revenues were a direct result of drop in sales volume from 580,000 tons to 490,000 tons, according to Global Investment House in Kuwait. Average cement prices remained slightly higher at RO31.33 per ton since the beginning of the year.

Despite such declines for suppliers, Kumar says: “I think that if the rest of the projects can go ahead it looks good for companies that produce cement or steel.” He highlighted the as-yet unlisted Al Madinah company as a future player in the country. It will begin production in 2011 with a start-up capacity of 800,000 mega tons.

White Knights:

  1. Muscat Hills - a collection of luxury homes and apartments around a golf course near the airport, finished quickly to see an increase in secondary market sales this year
  2. The Waves - a set of white villas running along the coast

White elephants:

  1. Blue City – the 20-year mega project of schools, apartments, villas and recreation areas said to have collapsed through lack of sales and financing interest
  2. Salam Yiti, an RO770 million resort

Muscat Securities Market – stocks to watch

  1. Al Jazeera Steel Products Company – leaped from RO0.32 to RO0.39 between 25th March and 4th April, normalising since to around 0.36
  2. Construction Materials IND – shot up in three months from RO0.1 to RO0.9 between 25th January and 25th April
  3. Majan Glass – up from RO0.65 at the beginning of January to RO0.8 by the third week of March

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