Property rents decline 20pc over last two years

MUSCAT, SEPT 23 -+ After a roughly 20 per cent decline in property rents over the past two years, real estate rents appear to be bottoming out, according to the Central Bank of Oman (CBO), which nevertheless has urged local banks to beware of possible exposure to this key sector.

Commercial banks, the banking sector regulator has warned, have “substantial direct and indirect exposure” to the Omani real estate sector, which in past years has thrived amid a low interest rate environment. Steady demand for rental property has contributed to attractive rental yields for property owners, the apex bank stated in its Financial Stability Report 2018.

“However, of late, there are indications that the price momentum on the real estate market has slowed. Anecdotal evidence and industry reports suggest that the property rents declined by over 20 per cent on average during the last two years. However, latest trends suggest that after continual fall, the rental markets in Oman may now be bottoming out,” the CBO report noted.

While urging banks to be vigilant for any vulnerabilities as a result of their lending to the real estate sector, the Central Bank noted that the extent of exposure was largely in line with their counterparts elsewhere around the GCC, both in terms of real estate credit to GDP and real estate credit to total credit.

“The total real estate exposure of the banking sector is about 30 per cent of total lending portfolio which is considered large as a weakening3 in the real estate market could expose the banking sector to considerable risks,” the CBO report said.

“Although, at present there are no significant signs of stress in the Omani real estate market. However, sizable exposures signify that a shift in the investors’ sentiments, decline in rents or higher vacancy rates for built-to-rent real estate may rapidly jeopardise the exposure of the banking sector. Therefore, conditions in real estate market remain an area to be watched,” it added.

Conrad Prabhu