Monday, September 20, 2010

Royal Decree Relaxes Foreign Shareholding Restrictions

Real Estate Law Update

A recent amendment to Omani land use laws could well prove to be a tipping point in the liberalization of the real estate sector in Oman. The Land Law of 1980 and its subsequent amendments originally paved the way for corporate ownership of land, by permitting wholly Omani (or GCC) owned companies and public joint stock companies with at least 51% Omani shareholding to own land in the Sultanate.

Yet even after the enactment of the Land Law, corporate ownership of land remained highly restricted, as Omani companies with foreign ownership – even joint stock companies with greater than 51% Omani shareholding – could not own and utilize real property except for limited purposes complementary to their business objects. For example, these companies could use land only for installing a showroom, warehouse or business office, for providing staff accommodation, or for other administrative purposes. Only wholly Omani owned companies were permitted to engage in real estate development as a business object.

Trading and investing in real estate development, as well as the reselling of real estate property, remained the exclusive preserve of wholly Omani owned companies with related real estate objects until 2004, when these business fields were opened up to wholly GCC owned companies. However, ownership of land in the Sultanate by companies with non-Omani GCC shareholding is subject to conditions which include a well-defined timeline for development of the land along with restrictions on reselling the land without first completing the planned developments to the property. Real estate companies with non-Omani shareholding had to content themselves with usufruct rights over land granted by the Government or by private parties. Usufruct as a beneficial interest in land is time-bound and has limited assignability, which can be a deterrent to undertaking long-term real estate development projects.

These restrictions are now changing. The recent amendments to Omani land use laws issued by Royal Decree 76/10 seek to relax the foreign shareholding restrictions as well as the limitations on the usage of land. The amendments enable public and closed joint stock companies with a minimum of 30% Omani shareholding to own land in the Sultanate. More significantly, the amendments allow these companies to engage in real estate development as a business object, a key permission that previously had been restricted to wholly Omani (and later, GCC) owned companies. Although the amendments do not purport to grant ownership rights to companies that are not in the real estate development sector, they represent a watershed event for real estate development companies that are executing various ITC and non-ITC projects in Oman. (Integrated tourism complexes, or ITCs, are large-scale planned developments that usually include residential properties, hotels, shopping and entertainment facilities.)

Pursuant to the amendments, real estate companies must do the following in order to own land:
  • obtain prior approvals from the relevant government authorities for a specified real estate project;
  • not dispose of the land within four years of the registration of ownership;
  • obtain a building permit for the land;
  • register the sale of units only after the completion of construction of the units and the basic infrastructure related to them; and
  • have real estate development as a business object stated in its commercial registration.
It is unclear whether real estate companies with existing holdings satisfying the above conditions would be entitled to “upgrade” their existing rights on the back of the amendments.

The amendments also increase the permitted foreign shareholding in companies for entitlement to usufruct. Omani companies with up to 70% foreign shareholding and a minimum of 30% Omani (or GCC) shareholding are now entitled to usufruct over land for national development projects.

Furthermore, the amendments amend the Law on Ownership of Real Estate in Integrated Tourism Complexes, authorizing the Ministry of Tourism (with the prior approval of the Ministry of Finance) to exempt investors in tourism projects – including ITC projects – from the payment of usufruct fees for five years in relation to the undeveloped project area. The amendments make it obligatory to commence an ITC project within two years of securing the land. Lastly, another significant development is that the amendments allow the developer to subdivide the project land in coordination with the Ministry of Tourism, with the proviso that the subdivision will be in accordance with the designated purpose for which it was earmarked.