Oman's relaxation of foreign ownership rules – a welcome boost to the real estate sector?
Oman's Ministry of Housing and Urban Planning (MHUP) has permitted, under Ministerial Decision 357 of 2020, the ownership of usufruct rights by individual expatriates in Oman; allowing non-Omanis to purchase apartments in certain areas in and around Muscat.
What are Usufruct Rights?
Usufruct rights are rights to use and earn income from property for a limited time; they are broadly similar to leasehold rights and are commonly used in infrastructure projects here in Oman.
The new resolution permits non-Omanis to purchase property to live in, rent out (after an initial period of 4 years), or to use as collateral for any financial transactions. The MHUP resolution permits expatriates to acquire usufruct rights for an initial term of up to 50 years which can be extended up to 99 years. The current position is that the rights will expire after 99 years.
The usufruct rights can be sold and will pass to the legal heirs of the expatriate owner, who may benefit from the same rights.
How will the scheme work?
In order to qualify under the scheme, the buyer must be purchasing a property in a multi-storey (4+ floors), residential or commercial mixed-used building within the specified locations identified and licenced by the MHUP. At the time of writing, Muscat Governorate is the only location under the scheme, with this to be rolled-out to other Governorates in areas identified by the MHUP for real estate investment in accordance with planning criteria and regulations.
If a landlord wishes to apply for a property to be licenced under the scheme, the building must contain at least 2 room apartments and cannot be older than 4 years from the date of issue of the building completion certificate. Residential units in new-build developments must be purchased after construction has been completed. Up to 40% of the total number of units in the building can be bought by expatriates under the scheme, and no more than 20% of that allocated percentage should be of one nationality. MHUP has stated that this restriction isf to encourage diversity in the developments.
There is a minimum purchase price of OMR 45,000 for licenced units in the Governorate of Muscat and OMR 35,000 when the scheme is introduces to other Governorates. The level of the minimum price will be under regular review by MHUP. The fees incurred by parties participating in the scheme will be 3% of the unit value for the seller and 5% of the unit value for the buyer, both to be paid on application to register the usufruct with the Secretariat of the Real Estate Register.
In terms of who can benefit from the scheme, the usufruct rules will apply to non-Omani buyers aged 23 or over, who have been resident in Oman for at least 2 years. A visa will not be given to expat buyers under the usufruct rules, though the MHUP has stated that this is under consideration. The apartments must be used personally by the buyer or jointly with their first degree family (i.e. parents, siblings and children of the buyer) for at least 4 years before leasing or selling their interest. If the usufruct owner's circumstances change during this period, an exemption can be sought from the MHUP. Buyers may not buy more than one unit under the scheme.
What is the impact?
The MHUP has identified specific areas in the Muscat Governorate for the introduction of the scheme, including Bausher, Al Amerat, and Al Seeb. Licenced developments in these areas will be separate from existing residential neighbourhoods.
It seems certain that the scheme will diversify the Omani economy and that the usufruct rules will be popular with expatriates living and working Oman. It is a step which brings Oman more into line with its neighbours and will hopefully encourage long-term investment in Oman by residents.
A striking element of the scheme is the restriction on nationalities within each licenced building. Clarity is needed on how these controls will be implemented, for example, if a sale of a unit brings the nationality percentage over the limit, with MHUP be able to refuse to register the sale? Similarly, does the restriction apply once an owner is able to rent the property? How will this be enforced?
The previous regime, which permitted non-Omanis to buy property only in designated Integrated Tourism Complexes (ITC), grants expats a residence permit which remains valid until that property is sold. As there is no visa or residency arrangement provided under the new usufruct scheme, should an expat buyers' circumstances change at short notice and they lose their right to remain Oman, can they still validly hold the usufruct right and rent it out or sell it?
Planning ahead – questions to consider
Before the introduction of the usufruct scheme, expatriates in Oman could only own real estate in limited circumstances, under which there is no automatic or guaranteed right of inheritance, even if specified in a will.
Under current Oman Regulations, in the event of death of an owner of property an in ITC, the ITC developer shall inform the Ministry of Tourism (MOT), and the Directorate General of Civil Status shall inform both the MOT and the Ministry of Foreign Affairs (MOFA), who must notify the relevant embassy of the deceased within 30 days of their death. The heirs of the deceased then have one year to apply to the MOT to inherit the Omani Property, even where specified in a will. If no application is received within that year, the MOT may distribute the asset as they see fit.
Although the usufruct rules expressly permit non-Omani's usufruct rights to transfer to their legal heirs, it remains to be seen whether, under the new scheme, applications to the Omani authorities will be required in order for the rights to transfer.