The sound macro-economic environment in Oman is spilling its healthy effect on the real estate sector. The last couple of years were the years of opportunity for the Omani real estate market, with the sector making substantial headway and activities in the real estate sector picking up. The total plots distributed have increased from 11,925 in 2003 to 35,359 in 2004, with the residential sector capturing the biggest share of the boom, registering 85.7% of the total number of plots distributed in 2004. It is worth noting that most of the activity is concentrated in the capital city ``Muscat`` representing around 38% of total plots distributed in 2004.

Key drivers of the Omani real sector includes growing population, young demography, an inflow of expatriates labour, interest rates, liquidity, financing options, construction costs, and foreign ownership legislation. We believe that the foreign ownership law will be a significant driver of the demand for real estate in the future. A Royal decree 12/2006 was announced recently, which expands foreign ownership rights which were formerly restricted to GCC nationals to include non-GCC nationals as well. The executive regulations of the new law are expected to be issued shortly by the Ministry of Housing, Water and Electricity. Large projects like ``The Wave``, ``The Muscat Golf Course`` project and The ``Blue City`` are expected to benefit from the law.

The residential segment has witnessed major price appreciation in 2005. Land prices have shot up in Oman during the last year, especially prices of lands adjacent to mega projects. Most of the appreciation in prices was driven by speculative buying from GCC investors. Work on ``The Wave`` project has driven up the prices of adjoining seaside plots in Azaiba which shot up from RO100 per sqm to over RO220 per sqm in less than a year. We believe that the trend of escalating prices is likely to continue led by GCC investors` land purchases. The areas expected to witness the highest escalation in prices are the areas adjacent to the mega projects undertaken by the government in tourist designated zones such as ``Al-Azaiba``, which is close to ``The Wave`` project, and the Sohar industrial area which is seeing increased activity, with lots of projects coming up. Residential rents have also climbed by 25% year on year basis in 2005. We expect the residential segment to witness increased activity supported by the positive outlook of the economy, the influx of expatriates, the need for good quality housing, and above all the recent announcement of foreign freehold ownership law.

The office segment in Oman witnessed a major shift from a stagnant stage characterised by weak demand, and lack of foreign investments to a shortage of supply situation spurred by the increase in the number of new companies setting up base driven by the upbeat state of the economy. Demand for high quality commercial space has started to pick up recently creating a shortage of office space, and inducing an increase in commercial rents. With demand for office space outstripping supply, monthly rentals have gone up from RO2.5/sqm in 2004 to RO6-7/sqm in 2005, and yields are currently ranging between 9%-10%, which is low compared to other GCC countries. We expect demand and returns on commercial space to pick up, spurred by the healthy macro-economic environment. The retail segment however did not witness fundamental changes since our last report. With a low consumer appetite in Oman, we do not foresee any demand for retail space.