Real Estate, Construction and Hotels & Leisure Focus
Ahmed Al Barwani Partner, Head of Office - Oman, Corporate Commercial
Chelsea Pollard Paralegal, Corporate Commercial
Expanding on our previous law update articles focusing on the legal framework for investment in the Oman tourism sector and discussing foreigners’ right to own real estate in Oman, this article will discuss integrated tourism complexes (“ITCs”), usufructs of Omani land, foreign property ownership and the legal framework for such, including the laws, regulations, and licensing and permit requirements. As part of Oman Vision 2040, a comprehensive framework has been created to encourage foreign investment, especially within the real estate and tourism sectors focusing on ITCs.
As explained in our previous articles, ITCs are regulated by Sultani Decree Number 12/2006, as amended by Sultani Decree No. 76/2010 (“ITC Law”), which provides an avenue for non-Omani natural and legal persons to own ITCs for residential and investment purposes by exempting them from certain rules in Oman’s property laws and regulations. Since 2006 and with the aim of diversifying its economy, Oman has been focusing on attracting local and foreign investment in residential and tourism projects under the ITC scheme. Oman’s initial ICTs were focused on residential complexes and resorts, such as the Wave (Al Mouj), Muscat Hills, Barr Al Jissah, and Muscat Bay. However, the current trend is focusing on tourism and progressive developments. In 2021 for example, Oman Tourism Development Company unveiled its ITC named Yiti, which is set to span over 11 million square meters extending the city of Muscat and creating an all-inclusive development that will include residential, tourism, commercial, and business components. Other notable projects include Hawana Salalah in Dhofar, which focuses on sustainability and seamless integration with nature, Hayy Al Sharq Project which aims to be the first leisure and entertainment destination in Oman and Madinat Al Irfan in Muscat which already includes a convention centre and hotels next to Muscat International Airport. These developments and the general encouragement of foreign investment, comes as part of the efforts to diversify the economy, with one area of focus being to expand real estate development projects.
Under the Usufruct Law, Sultani Decree 5/1981 (as amended in 2010), the Minister of Housing may grant a natural or legal person, including non-Omanis, usufruct over a part of the land owned by the Government of Oman to carry out projects that cater to development for a specific period. The usufructuary (the grantee of the usufruct) is granted the rights of an absolute owner, such as the right to quiet enjoyment, sell, mortgage, or lease the land for a restricted period of time usually no more than 25 years. Upon expiry of the usufruct right, all rights revert to the State and depending on the decision of the Ministry, the usufructuary will either need to return the land in the condition it was given or if it is decided that any development should be maintained, then the usufructuary will be compensated for the added value to the land. A majority of projects initiated by usufruct have been in conjunction with the law on privatisation, Public Authority Decision Number 4/2020, for foreign investment in agricultural projects, fisheries, and logistics. Under Ministerial Decision Number 357/2020, additional usufruct rights were granted to foreigners permitting the purchase of flats in multi-story, mixed commercial, and residential buildings outside of ITCs. This change on allowing foreign ownership outside of the scope of commercial projects was further expanded in 2022.
In expanding foreign ownership rights the Minister of Commerce, Industry & Investment Promotion amended the Foreign Capital Investment Law through Ministerial Decision Number 72/2020 to provide foreign investors with additional opportunities to invest in Oman. Specifically, under Ministerial Decision Number 58/2022, there is now an option for foreigners to buy residential, commercial, and industrial properties valued above OMR500,000, which entitles the investor to a ten-year extendable first-class residency or for residential-only properties valued above OMR250,000, but under OMR500,000, which entitles the investor to a five-year extendable second-class residency. For investments below OMR250,000, foreigners may still purchase such within the ITC or usufruct schemes. This introduction aligns with Oman Vision 2040 and aims to encourage long-term residency of expatriate residents to contribute to the growth of Oman’s economy.
To obtain approval for an ITC project, foreign investors must submit a development agreement to the Ministry of Tourism for approval. Whereas to obtain a grant of usufruct, approval must be obtained from the Ministry of Housing and depending on the type of structure to be built, Ministry of Tourism approval may also be required. For ITCs, following the ratification of the agreement, the development plan would need to be submitted to and approved by the Ministry of Tourism in coordination with the Ministry of Housing and the relevant municipality. Once the plan has been approved, then permits and licensing for the buildings and any excavation works would need to be obtained.
The relevant building and excavation permits are captured by Ministerial Decision Number 48/2000. Depending on the type of contract entered into, the obligation to obtain permits will either fall on the employer (in build only contracts) or the contractor (in engineering, procurement and construction or turnkey contracts). Foreign investors should be mindful when entering into contracts with contractors regarding the procurement obligation.
When entering into contracts with contractors, investors will need to consider Part Three of Royal Decree Number 29/2013 (the “Civil Code”), which deals with work contracts. Specifically, Chapter 1 deals with muqawala contracts (contracts to build). In Oman, the International Federation of Consulting Engineers standard form contracts are commonly used for build contracts with foreign parties. When contracting, investors should be aware that any terms which are contrary to public policy, Oman law, or Shari’ah law or seek to limit a right prescribed by Oman law, such as decennial liability, will be deemed void. If a term is deemed void, that alone will not call into question the validity of the contract, which shall remain valid.
Unlike some jurisdictions, liquidated and ascertained damages (LAD) clauses are permissible under Oman law and are commonly included in build contracts; investors should ensure they negotiate LAD clauses when contracting. Additionally, while force majeure is recognised under Omani law, it does not provide a definition of what constitutes a force majeure event. Accordingly, it would be pertinent to negotiate and define force majeure in any contract entered into. Generally, Omani courts recognise circumstances which frustrate performance of a contract but not a contract becoming uneconomic due to a force majeure event. In light of the COVID-19 pandemic and supply chain issues, investors should be especially mindful of any force majeure clauses when contracting.
As part of Oman Vision 2040 and the aim to diversify and build Oman’s economy, the introduction of new opportunities for foreign investment and recent amendments to the existing laws and regulations have created a comprehensive framework for investors in Oman.
For further information, please contact Ahmed Al Barwani.
Published in July 2022
