First past the post

As the first major government-backed project to be launched since 2007, the Saraya Bandar Jissah resort project near Muscat will be a true litmus test for how well Oman’s real estate market has recovered from the 2008 downturn. CEO Sheikh Hamood Bin Sultan Al Hosni talks about the pressure he is under to deliver
Optimist: Sheikh Hamood believes the success of the Saraya Bandar Jissah resort project will encourage other \ninvestment.
By Shane McGinley
Sat 21 Dec 2013 01:07 PM

Gulf developers are, as a breed, typically full of big ideas, big ambitions and even bigger claims. They want to sell fast, build quickly and move on to the next record-breaking venture as soon as possible. It’s an adrenaline-filled industry.

Sheikh Hamood Bin Sultan Al Hosni is, refreshingly, quite different. Making his appearance in a portacabin in the dusty hills outside Muscat, he arrives with no entourage or grand entrance and is wearing a branded t-shirt, construction boots and casual clothes. He’s all ready for a hands-on tour of the site to check out the latest developments on the project.

Hard hat balanced in one hand, he jokes with his colleagues as a photographer encourages them to give bigger smiles and try not to be blinded by the sun. Framing the scene is Oman’s biggest asset: its natural beauty and jaw-dropping landscape.

It’s a scene that’s tough to imagine ever taking place in Dubai or Doha or any of the other fast-paced Gulf markets. But that’s what is great about Oman: they seem genuinely uninterested in the ‘build ‘em high and sell ‘em fast’ attitude that is commonplace in other parts of the market.

While Sheikh Hamood may not be declaring an ambition to build the world’s tallest building, stage the world’s biggest events or quadruple the country’s tourist footfall in record time, his naturally laid-back demeanour shouldn’t distract from the fact that a lot is riding on the success of the government-backed master development he has been given the task of masterminding.

“Our project will be the first one since 2007 to be launched,” he says. “I believe the success of this project will encourage other investment and other integrated tourism complexes [ITCs] which are on hold.”

The project in question is Saraya Bandar Jissah, a new $600m complex offering 400 residential homes and two five-star beachfront hotels, as well as recreational and community facilities. The 2.2 million sq m coastal site is located on a beautiful secluded beach surrounded by the Hajjar mountains just east of Muscat.

Originally conceived in 2005 by the Ministry of Tourism, it is a joint venture between Oman’s tourism development and investment arm, Omran, and Saraya Oman, a subsidiary of UAE-based developer Saraya Holdings.

“As you know, the government is promoting the tourism sector and it contributes positively to the area and the GDP of the country,” Sheikh Hamood, the chief executive of the developer, says. “This is one of the sites they approached Saraya to develop as a project.

“I joined the company in mid-2008 and then we started developing the design and getting approvals from the governments,” he continues. Set up in 2005, Omran had planned to develop nearly a dozen large-scale, five-star resort projects along the Omani coastline, with a combined value of around $10bn. In the midst of the downturn, many of these were mothballed and progress on others slowed down to an even slower pace. With the market now seeing a resurgence and developer confidence in full swing again, Omran is back at the drawing board and looking to invest in the country’s future.

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As the first project conceived by Omran and the first big government-backed project to be tested in the market when sales start in early 2014, a lot is riding on Sheikh Hamood’s shoulders.

“There’s lots of pressure,” he admits with a smile. “The market is promising nowadays, here in Oman and in neighbouring countries. There are projects that are launched for sale and are sold in a matter of hours so we feel the market is coming back.”

The indicators are certainly positive. In October, Oman’s National Centre for Statistics and Information (NCSI) confirmed GDP growth during the first half of 2013 was up 2 percent year-on-year and the hydrocarbon sector, which constituted 51 percent of the national economy, is growing even faster at 8.1 percent.

This has led to more expatriate workers flocking to the country to help it exploit its natural resources, helping the population — which, unlike many other Gulf countries, is predominantly made up of locals — to grow by around 4.5 percent per annum.

This has translated into strong demand for quality residential housing. A recent report by real estate firm Cluttons suggests that the hydrocarbon sector alone is expected to result in the relocation of hundreds of families to Muscat and the surrounding areas as gas fields in Khazzan are developed further.

All of which is music to the men behind Saraya Bandar Jissah. With these positive indicators in place, Sheikh Hamood says it is set to go to market next year and begin sales in early 2014.

“We always like things to be clear... We don’t want to sell off-plan without seeing the future and when we are going to start construction,” he says. “That is why we are slowly tendering out and tendering the first residential package so we are ready with a construction package at the same time as starting [sales].”

“We are trying to avoid the speculation as much as possible,” he adds, remembering some of the frenzy seen during the boom times in 2008 and which have been witnessed in small pockets in recent months.

“Speculation you cannot avoid completely, but I want that, whoever buys from us, it is for a person to live in. This is our target. We want the resort to be lived in, not just like a resort that when you enter it there are no lights on and no one is in.”

The experience of rival projects The Wave Muscat and Muscat Hills Golf and Country Club is also a good indicator, according to real estate firm Savills Oman.

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“The rental sector has grown significantly over the last 12 months,” the agency said in a report. “Particularly for villas, demand is now outstripping supply and upward rental movement has commenced. Whilst already priced higher than the comparative non-ITC villas, we anticipate growth of up to 20 percent over the next 12 months, reflecting the lack of available rental property, compounded by the fact that there will be no brand new stock addition for at least two more years.”

While Sheikh Hamood declines to release unit prices, Savills says prices for two-bedroom apartments at Muscat Hills start at OMR135,000 ($350,558), while four-bed villas start at OMR325,000 and five beds rise to OMR525,000. “With yields now approaching 10 percent gross based on original purchase price, owners appear naturally reluctant to sell unless at a significant premium to market value,” the firm said in its research note.

“We are still studying exactly how we estimate the sales figures. There are not many ITCs so it is difficult to determine square metre prices. We are investigating what are the square metre prices and trying to limit our costs,” Sheikh Hamood says, adding that the masterplan has seen some changes to reflect the new sales environment.

“We are trying to balance it out... the market is not what it used to be. It is getting better but it is not like it used to be in 2008. From 2006 there is a change in terms of the density of the residential units. Before the masterplan looked too dense and the number of residential units was too high... We really looked at it and the site doesn’t require that number of residential units so we reduced it to make it somehow more pleasing to the buyers.”

The project has appointed British firm Atkins to provide construction supervision services for the infrastructure works on site, with an infrastructure construction contractor due to be appointed later this month. He described construction site work, which started in August 2012, as making “good progress” and the project is on track for its grand opening in 2017.

“The direction from the shareholders is to move forward. At no point did we receive any instruction to slow down. Both shareholders are keen to move forward. We already started the enabling works. Also we are constructing the drainage channels so we are doing the bases for all the residential elements. That work is ongoing,” says Sheikh Hamood.

Another prized partner also signed up recently is Dubai’s Jumeirah Group, operator of the iconic Burj Al Arab hotel, which has been contracted to manage the two hotels.

In another first, Saraya Bandar Jissah is the hotelier’s first signing in Oman. “Jumeirah Group is a name well-known across the globe for its hotels and resorts. It brings with it a certain expectation — of luxury and world-class service — and this is a perfect fit for Saraya Bandar Jissah,” says Sheikh Hamood.

“We chose to partner with Jumeirah Group as we share the same belief in world-class service and unrivalled luxury. As the first Jumeirah hotel in the sultanate, they will provide a new and exciting option for tourists to Oman,” he adds.

“We are delighted to have been selected by Saraya Bandar Jissah to operate this resort in one of the most beautiful parts of Oman. As we continue to expand the Jumeirah brand across the Middle East, we bring our exceptional quality of service to loyal guests in new markets, helping them to discover the very best in luxury hospitality and the beauty of emerging destinations like the Omani coastline,” Gerald Lawless, president and Group CEO of Jumeirah Group, said in a statement.

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The first 206-room hotel project has already been tendered and is due to be awarded this month, while the second 106-room property will be tendered by the end of 2013 and will likely be awarded by the second quarter of 2014.

“It will start construction ‘immediately’ and the first hotel will take maybe three years,” Sheikh Hamood says.

One of the positive press cuttings for the project is the fact it is likely to generate around 1,000 jobs in the area, but Sheikh Hamood says that figure could be even higher: “The 1,000 jobs is at the operation stage because the hotels will be roughly about 800 and then the 200 will be part of the facilities management and it is direct employment. In the tourism sector any direct employment will create three indirect jobs in the industry, due to the supply chain, so maybe 3,000 or 4,000 in total.”

In August 2012, an Omani minister claimed tourism projects in Oman were facing tough “financial challenges” with around 65 percent of private sector projects failing to get off the ground due to a lack of development funding.

However, Sheikh Hamood says the situation is now different and there is plenty of liquidity for developer and for buyers. “Actually the banks are ready, we have been in touch with the local banks and they are more than happy to finance us and offer mortgage finance to buyers, they have become more flexible. They normally lend 60:40 or 70:30 and 80:20 in some cases. In Oman they never stopped lending money to investors or homebuyers. If you see two years ago they were much more conservative but now the banks have lots of cash and are looking for opportunities.”

September saw the board of directors of Saraya Bandar Jissah agree to inject a further $18m of capital into the company, taking the total capital for the integrated tourism complex to $130m. In terms of long-term project finance, Sheikh Hamood says the company also plans to eventually list on the stock market once it has proven its operational ability and turned a suitable profit.

“It is part of our strategy but there are certain requirements... the hotel industry is not so easy so in order to make the project profitable you need to wait for a long time and one of the requirements of the Muscat Securities Market is to show profit for... consecutive years in order to go for an IPO and protect the investors.

“Entering the sale period is not enough I believe. The amount of cash you get will not be enough to cover all the expenses as you are getting payments in stages and you are spending lots of money as you have the hotels to build and the residential units and so on. You will never make profit in the first few years, but maybe after the hotels become fully operational in three to four years time then at that time you can think about it. You need to make the hotels operational and you need to make the hotels profitable and then you evaluate going forward in terms of IPOs.”

As it gets set to enter the dragon’s den of residential sales, it is certain Sheikh Hamood is determined to steer a steady course and make sure to set a solid example for others to be inspired to follow.

“Most of the concentration is on this project and the success of this project will make them decide on how to go forward.” For a man who seems so chilled out, he certainly has a lot to think about.

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