Changes in fees and reporting requirements affect Oman's real estate market

Faced with lower oil revenues than in previous years, it is perhaps unsurprising that the government of Oman should look to more vibrant areas of the economy as a source of additional tax revenues. However, when the Ministry of Housing hiked real estate transaction fees for sales and leasing in February 2016, from 3% to 5% of the land value, some real estate experts were concerned state revenues might fall and market transparency decrease. Their argument was that, faced with an increase in fees, parties to a real estate transaction might be tempted to report a reduced sale value to avoid additional taxes, thus reducing the resale prices of land and property. “Although at face value this should result in increased revenues, I think that conversely a reduced fee would have generated a greater volume of reported transactions, encouraging people to give a more accurate report on prices,” Christopher Steel, managing partner of Savills Oman, told OBG.

Transaction Fees

The Oman Real Estate Association has been lobbying for the introduction of a real estate pricing index in the sultanate to increase transparency, giving both buyers and sellers a clearer picture of the current prices and transaction histories related to properties. Its members argued this would also prevent any fraudulent reporting of sales values.

The new transaction fees, announced on January 30, 2016 by the minister of housing, Sheikh Saif bin Mohammed Al Shabibi, do not apply to transfers of property to a next-of-kin, but they do for title deeds to plots of land granted to citizens. On the same date as the change in fees, new rules were introduced for rental transactions, raising similar concerns. The new regulations of rent stipulate that when a lease agreement is drawn up, the landlord “or the tenant if so agreed with the landlord” should pay 5% of the lease value in the contract.

Potential Effects

Salim Al Ghammari, a member of the Muscat municipal council, told the Times of Oman he feared many landlords would either pass the additional charge onto their tenants or attempt to let properties either without a contract or without reporting the contract to the authorities. Of the two, he said he felt the problem of unreported or unapproved contracts was more pressing. In each case, the rights of the tenant would be under threat. Echoing the views of some estate agents, Al Ghammari said he felt that reducing the fee to 1% of the value of the lease would have led to a 95% increase in reporting of transactions, creating a more transparent lease market and a fairer system.

Legal Definitions

Under Oman’s Tenancy Law, any short-term lease – typically those lasting for 12 months – must be registered with the local municipality, but any lease of seven years or more must be registered with the Ministry of Housing. For longer-term leases, the amount payable as a registration fee is reduced to 0.5% of the total value of the lease, pursuant to a ministerial decision made in 1991.

According to a legal briefing by Curtis, Mallet-Prevost, Colt and Mosle, any tenancy agreement that has not been registered within one month of the transaction with the appropriate authority, and where the fees have not been paid, will have no legal standing. Landlords failing to register the agreement are liable to a fine equivalent to three months of the registration fee, and can also face fines for failing to report a change in ownership of a property equivalent to twice the registration fee, which under the new regulations amounts to upwards of 10% of the land’s value.

Figures Out

The value of traded contracts in Oman in the first six months of 2016 amounted to some OR6.2bn ($16.1bn), while fees collected on those transactions reached OR42.6m ($110.6m). For 2015, the total taxes collected from real estate transactions came to OR45.7m (118.7m), an increase from OR39.5m ($102.6m) in 2014 and OR28.3m ($73.5m) in 2013, according to the National Centre for Statistics and Information. In those three years municipality taxes on rented properties amounted to OR30.5m ($79.2m), OR27.6m ($71.7m) and OR24.5m ($63.7m), respectively.