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10 September 2008
New land ownership laws in Oman have sparked legal developments on many fronts. Sultani Decree No 12/2006 permits non-Omanis to own land in Oman for the purpose of residence or investment, provided the land is part of a designated 'integrated tourist resort'.
Prior to the decree, land in Oman could only be owned by Omani nationals and nationals of other Gulf Cooperation Council (GCC) states, including Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, or companies wholly owned by them (as well as public joint stock companies at least 51 per cent Omani-owned). Following Sultani Decree 12/2006, a number of developments have been licensed as integrated tourist resorts, including Blue City, the Wave, the Muscat Golf and Country Club, the Barr Al Jissah Resort and the Salam Resort in Yitti, although the precise terms of each of the licences are not available to the public.
This, coupled with Oman's rapidly growing population, has had a dramatic effect on land prices, with some residential plots in the centre of capital city Muscat reportedly being sold for Omani rial (OMR)150-OMR200 (£200-£260) per square metre, compared with just OMR75-OMR100 (£100-£130) per square meter only three or four years ago. The cost of commercial premises has risen from around OMR150-OMR200 (£200-£260) to OMR300-OMR400 (£400-£530) in the same period.
New developments are not confined to those licensed as integrated tourist resorts. Entrepreneurial companies have also spotted the potential for financial gain created by the shortage of both residential and commercial property in Oman, or more particularly in Muscat. Real estate developer Al Medina Real Estate Co is developing a multi-use commercial and residential development on 77,000 square metres not far from Muscat's international airport, Seeb Airport, which itself is being expanded.
These new developments require financing and banks and other financial institutions have been focusing their attention on how they can benefit. Increasingly, banks, financial institutions and high-net-worth individuals are expressing interest in incorporating funds, of which the asset portfolio would consist of Oman land and property, although currently those funds will be restricted to investment in integrated tourist resorts. HSBC, National Bank of Oman and Alliance Housing Bank now offer mortgage products to the expatriate community and to foreign individuals who wish to purchase property in the integrated tourist resorts.
Of course, it is not just the commercial, residential and tourist buildings that are creating interest, but also the necessary infrastructure that will be required to go with them. The demand for water and power is increasing dramatically in Oman and a number of major projects, such as the Barka I and II Independent Water and Power Production (IWPP) projects and the ongoing Salalah IWPP, are either underway or in the early development phases to satisfy this need. Oman has become a popular jurisdiction for the project investor.
Law firms in Oman have extensive experience of such projects and this breeds a confidence in the legal system, a confidence assisted by the fact that historically the government has been vigilant to preserve the country's good standing internationally as a supporter of such projects. In addition, the project structures are highly bankable as the risk-sharing mechanisms are sensible; the project company's fixed costs are guaranteed by way of capacity payment and offtake agreements are guaranteed for 15 years.
Oman differs from some of the other Middle East states in that the mechanisms of conventional financing have never come under serious legal challenge. For instance, the Oman Law of Commerce promulgated by Sultani Decree 55/1990 expressly recognises the right to levy interest and default interest on all loans or commercial debts (subject only to the regulatory role of the Central Bank of Oman). Additional methods of financing are beginning to be explored, as developers have seen an advantage in being able to describe their products as sharia-compliant, and increasingly lawyers are being asked to advise clients on real estate acquisition and project finance from this perspective.
These developments have had a marked impact on the legal market in Oman. In the past year there has been a noticeable shift in the nature and complexity of the matters that firms have been asked to advise on. The development of complex financial products and investment schemes, such as real estate funds (the legal structures of which have yet to be tested) means that pioneering work is being done in this area and growth in the legal market is expected as more investors recognise the financial potential of Oman's real estate sector.
•Paul Sheridan is Muscat managing partner at Denton Wilde Sapte