Report and Valuation for

 

OMAGINE LLC

 

Land at Al Mawelah North

 

Sultanate of Oman

 

January 2015

 

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Arabian Real Estate LLC
PO Box 947 PC 116

Sultanate of Oman

 

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Table of Contents

 

Ref   Item   page           1.   INSTRUCTION   3           2.   INTRODUCTION   4
          3.   DOCUMENTATION   4           4.   PURPOSE OF VALUATION   5        
  5.   LOCATION   6           6.   DESCRIPTION   7           7.   SERVICES   9  
        8.   OCCUPANCY & TENURE   9           9.   PLANNING   10           10.  
CONDITIONS OF VALUATION   10           11.   VALUATION   11           Appendix I
  GENERAL PRINCIPLES   12           Appendix II   LIMITING CONDITIONS   27      
    Appendix III   PHOTOGRAPHS   28           Appendix IV   THE PROJECT –
OMAGINE   31           Appendix V   INTEGRATED TOURISM DEVELOPMENTS   36        
  Appendix VI   DEVELOPMENT AGREEMENT AND LAND TITLE PAPERS   49

 

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1.INSTRUCTION

 

In accordance with our proposal to Omagine LLC dated November 6th 2014 and your
acceptance thereof on same date to provide you with a valuation of the property
known as “Omagine” at Al Mawelah North, we are pleased to confirm that we,
Arabian Real Estate LLC, Company registration number 1061295 and International
Associate of Savills have now carried out our inspection and analysis and report
below.

 

We have been advised that the valuation is required for loan security purposes
in connection with filing for report with the United States of America
Securities and Exchange Commission and we are to provide our opinion of the
following:

 

■A current day valuation of the Usufruct interest in the property assuming it is
bare land, subject to no claims or disputes, financial or otherwise, with the
benefit of the Development Agreement to allow future development as an
Integrated Tourism Complex Development (ITC) and on the basis of Market Value
reflecting the development model as proposed by Omagine LLC.

 

Definitions are contained in the General Principles at Appendix I.

 

We confirm that we have no conflict of interest with the subject property as
defined in practice statement 1 of the Royal Institution of Chartered Surveyors
(RICS) guidelines and we are acting as Independent Valuers. We confirm that the
valuer is competent to value the interest in the above mentioned property and
that this valuation has been prepared in accordance with the Professional
Standards of the Royal Institution of Chartered Surveyors (RICS).

 

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2.INTRODUCTION

 

The property was inspected on three occasions between 13th November 2014 and
January 5th 2015 by Christopher J. Steel , Managing Partner of Arabian Real
Estate LLC and the valuation has been undertaken by the aforementioned person,
who is a Fellow of the Royal Institution of Chartered Surveyors.

 

The date of valuation is the date of this report.

 

Although we have undertaken an inspection of the property and its surrounding
area, our inspection of the property was limited to parts thereof. Although
access can be gained to most areas of the site, a four wheel drive vehicle is
necessary owing to the sand terrain. In preparing our valuation, we have assumed
that there are no visible matters affecting the property that would
detrimentally affect our value reported herein.

 

The valuation has been undertaken in accordance with the practice statements in
the RICS Appraisal and Valuation Manual dated January 2014. Our report is
subject to the general Principles and Limiting Conditions as set out in Appendix
I and II.

 

We have assumed that the property is free of encumbrances, restrictions or other
outgoings of an onerous nature which would affect value, other than those which
have been indicated to us. Regard is made to the Special Assumptions contained
within Appendix IV.

 

3.DOCUMENTATION

 

In preparing our valuation, we have been supplied with copies of the following
documents:

 

■Land area identification plan annexed hereto

 

■Krooki number 01-05-12-01-1

 

■Master plan concept and development area schedule (only reviewed, not verified
for valuation purposes)

 

■Usufruct Agreement dated August 2014

 

■Development agreement dated October 2nd 2014 as archived below:
https://www.sec.gov/Archives/edgar/data/820600/000101376214001138/exda.htm

 

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■Construction costs as provided by Omagine LLC (only reviewed, not verified for
valuation purposes)

 

Unless stated, we have not read any original documents of title and the
valuation is totally dependent on the accuracy of the information supplied to us
by the instructing party. Photocopies of documentation are assumed to be
unaltered and any variant should be referred back to us as this may affect the
valuation figures reported below.

 

4.PURPOSE OF VALUATION

 

We understand that this valuation is required for the loan security purposes of
the instructing party in report filing with the United States of America
Securities and Exchange Commission. We have not been supplied with information
relating to the role of the instructing party or their financing intentions for
the subject property and undertake this valuation on the basis that any dealings
that result from this valuation are undertaken in good faith and within the
limits of international laws.

 

The values reported herein reflect the market value of the land on the basis as
stated above, assuming the land is ready for development with only normal costs
associated with preparation works required to allow its onward development. It
is noted that the valuation assumes there are no ongoing disputes, outstanding
finance arrangements or loans associated with the land in any form whatsoever
and it is free of all liens, mortgages or claims.

 

In accordance with the requirements of the RICS, we recommend that before any
financial transaction is entered into based upon this valuation, independent
verification of the information contained within this report and the validity of
the assumptions adopted is obtained.

 

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5.LOCATION

 

SITUATION

 

The property is situated in Al Mawelah North which lies approximately 10
kilometers from Muscat International Airport and 39 kilometers from the port
zone of Muttrah. The property is (via Route 1 and E 102) located approximately
428 kilometers drive from Dubai, United Arab Emirates.

 

The site lies in an important location, adjacent to (but separated by third
party owned land plot) The Wave Muscat, Oman’s largest Integrated Tourism
Complex to date. It lies in close proximity to major shopping malls and fast
developing residential and commercial areas.

 

ACCESS

 

The property is approached from November 18th Street, leading to (the presently)
un named road which forms a continuation of the former, or alternatively from
Route 1 via Al Ishraq the roundabout from its southern boundary. Ingress and
egress from the subject site is not restricted in any way. It is foreseen that
owing to the ongoing expansion of the area in general, that the roadway fronting
the site is likely to be upgraded to accommodate additional lanes in the same
manner as the approach road adjacent to The Wave Muscat in the short term and
certainly within the proposed timescale development period.

 

The site is also intersected by a newly constructed link road which connects the
main frontage road to the Seeb conriche via roundabout at its northern junction.
For the sake of this valuation we are assuming that alteration or deviation of
this roadway will be permitted in accordance with master plan design
requirements.

 

SURROUNDING PROPERTIES

 

The property is surrounded by partly developed property, formerly agricultural
in nature, large swathes of undeveloped land and sporadic housing developments.
To its north eastern boundary it fronts the Gulf of Oman. The immediate area has
undergone significant development over the last decade, evolving from a
primarily farmland area into one of medium to high density housing.

 

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6.DESCRIPTION

 

GENERAL DESCRIPTION

 

The property comprises of a land plot of irregular shape comprising
approximately 1,000,000 square meters (245 acres). The land has direct frontage
to the Gulf of Oman to its north eastern aspect of approximately 1,050 meters,
and fronts the main Seeb link road to its south western boundary.

 

The land is of generally flat nature although falls by approximately 2 meters
from its southern aspects to the north/north east. It is of primarily sandy
terrain and for the sake of this valuation is assumed as completely undeveloped.
It is not apparent from our inspection whether there is any detrimental tide
erosion to the site and for the sake of this valuation it is assumed there is
none.

 

There is a ‘noor’, or wetland section to the site to its north western quadrant
commencing just before the bisecting roadway which traverses the site. We are
not aware if this land is restricted for development in any way and our
valuation assumes full development potential is attainable without extraordinary
costs with regard to land fill and drainage requirements .

 

Under the terms of development agreement, rights (with restrictions and
limitations) to extended the land into the sea and effect reclamation works to
create waterways are permitted with a generalized extension right of 130 meters
from the present high to mid coastal tide mark.

 

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Note: Imagery for general identification purposes only and accuracy not to be
relied upon.

 

There are no apparent visible detrimental factors that indicate there would be
obstructions to development of the subject property area other than normally
present with the development of coastal fronting landed property.

 

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7.SERVICES

 

We have seen only limited information in relation to the services provided to
the site but the sake of this valuation, we are assuming in line with Schedule 8
of the Development Agreement and in accordance with normal practice, civic
utilities including water, drainage and electricity in such quantities as
required for the site upon full development and completion would be provided up
to the boundaries of the site in such locations and distribution to allow
economic user thereof. All distribution therein would be to the cost of the
hypothetical developer in the usual manner.

 

We have not arranged for any investigation to be carried out to determine ground
or soil conditions and we are therefore unable to report that the property is
free from risk in this respect. For the purpose of this valuation we have
assumed that such investigation would not disclose the presence of any adverse
conditions. We recommend that full soil and ground condition surveys are
undertaken before development proposals are taken further.

 

8.OCCUPANCY & TENURE

 

The site is assumed as a cleared and vacant site with no aspects affecting its
future development thereon. For the sake of this valuation we are assuming that
there are no rights to occupation of the land and that it is available with full
vacant possession and it is cleared and vacant for development.

 

The site is held under the terms of an Usufruct agreement of term 50 years
between The Government of Oman, Ministry of Tourism and Omagine LLC dated August
2014, transfer of which has been effected to Omagine LLC at an Usufruct fee of
OMR. 90,000 per annum (less any land transferred to a third party on freehold
basis). Under the terms of the Development Agreement dated October 2014,
Schedule 14, the onward sale on a freehold basis from this is permitted subject
to payment of a stipulated fee of OMR. 25 per square meter of onward transferred
land (with provisions for upward revision over the course of the agreement). The
valuation herein has regard to the terms and obligations of this.

 

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9.PLANNING AND DEVELOPMENT ASSUMPTIONS

 

The Krooki for the land classifies it as Tourism use with no predetermined
height, density or other restrictions. For the purpose of this valuation we are
assuming planning and development allowances will be as permitted under the
Development Agreement dated October 2014 and as realistically altered over the
development period. There are conditions contained within the Development
Agreement in terms of requirement to build within stipulated time scales and
this valuation assumes all such conditions will be met and no default from the
terms therein is likely.

 

For the purpose of this valuation we are assuming land will be developed in
accordance with the design and massing proposals as developed by Omagine LLC and
our stated Market Value herein reflects the Project Related Site value derived
from these development assumptions. Any variance in terms of usage, density or
otherwise could materially affect the value as stated herein.

 

This valuation assumes continuing political, economic and social stability
within the Sultanate and its surrounding countries. Any change in such matters
could materially affect the value reported herein and we cannot be held liable
for such variances in any regard.

 

10.CONDITIONS OF VALUATION

 

The valuation contained herein is given on the basis that the property is not
subject to any unusual or especially onerous restrictions, encumbrances or
outgoings and that good title can be shown; that the property and its value is
unaffected by any matters which would be revealed by a local search and replies
to usual enquiries, or by any statutory notice; and neither the property, nor
its condition, nor its use, nor its intended use is, or will be, unlawful; and
that the inspection of those parts which have not been inspected would neither
reveal material defects nor cause the valuer to alter the calculation
materially. The report is provided for the stated purpose and for the sole use
of yourselves. It is confidential to yourselves and your client for the purpose
to which it relates but may be disclosed to other professional advisors
assisting yourselves in respect of that purpose only. The valuers accept
responsibility to you alone that the report has been prepared with the skill,
care and diligence reasonably to be expected of a competent surveyor, but
accepts no responsibility whatsoever to any person other than the client. Any
other person relies upon the report at his own risk. Neither the whole nor any
part of this report or any references to it may be included in any published
document, circular or statement nor published or reproduced in any way without
our written approval of the form and the context in which it may appear.

 

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11.VALAUTION

 

It is advised that the valuation has been carried out utilizing the comparative
and residual methods of valuation.

 

Our opinion of the Market Value of the Usufruct Interest of the subject property
and subject to the observations made herein here as at the date of valuation
is:-

 

  OMR. 295,000,000.000     Omani Rials Two Hundred Ninety Five Million Only  

 

Valuation hereby certified and signed

Date of valuation: January 10 2015

Christopher J. Steel FRICS

Arabian Real Estate LLC

 

Company Registration Number 1061295

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Appendix I

 

General Principles

 

Standard valuation assumptions

 

All valuations are carried out in accordance with the RICS Valuation -
Professional Standards 2014 (Global Edition) (or as amended).

 

Unless agreed otherwise in writing, or stated otherwise in our Valuation Report,
the following Standard Conditions of Engagement shall apply:

 

1.INSPECTION

 

1.1The Valuer will undertake a visual inspection of the exterior and interior of
the property, to the extent which is accessible with safety and without undue
difficulty, as can be seen whilst standing at ground level and within the
boundaries of the site, and adjacent public/communal areas, and whilst standing
at the various floor levels which the Valuer considers reasonable in order to
provide the service having regard to its purpose. The Valuer will not carry out
a building or structural survey or inspect those parts of the property which are
covered, unexposed or inaccessible nor raise floor boards, move any fixed
apparatus or arrange for a test of the electrical, heating or other services.

 

1.2In preparing the report, unless otherwise stated by the Valuer, the following
assumptions will be made which the Valuer is under no duty to verify:

 

a.That no deleterious or hazardous materials or techniques were used in the
construction of the property nor have since been incorporated.

b.That inspections of those parts which have not been inspected would neither
reveal material defects nor cause the Valuer to alter the valuation materially.

 

1.3Our valuation assumes that all electronically operated or electronically
controlled equipment at the property is not or will not be adversely affected by
any computer virus or date related programming problems which may affect their
operation.

 

2.ENVIRONMENTAL CONSIDERATIONS

 

2.1The Valuer does not undertake any environmental testing as part of a normal
valuation inspection and will therefore usually report that enquiries have not
revealed any contamination affecting the property or neighbouring property,
which would affect the valuation. However, should it be established subsequently
that contamination exists at the property, or on any neighbouring land, or that
the premises have been or are being put to any contaminative use, this might
reduce the values reported. When valuing property where the Valuer suspects
contamination may exist this will be reported. If an approved Environmental
Consultant is employed their report should be referred to the Valuer. The Valuer
will then refer to the Consultant’s report in the valuation identifying the
nature of the contamination and adjust the valuation to have regard to the
estimated cost and likely liability for treatment. However, should it be
established subsequently that other contaminants exist at the property or on any
other neighbouring land, or that the premises have been or are being put to any
other contaminative uses this might reduce the value reported.

 

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2.2Unless otherwise stated by the Valuer, the following assumptions will be made
by the Valuer which he is under no duty to verify:

 

a.Investigations have not been undertaken on the site in the form of any
geotechnical report to determine the suitability of ground conditions or
services for any new developments.

b.In the case of agricultural land, the Valuer is not able to accept any
responsibility as to the possible latent infestations in the soil or any disease
which might affect crops or stock at any time in the future.

 

3.TENANTS

 

3.1Although the Valuer reflects a general understanding of a tenant’s status in
the valuations, the Valuer makes limited enquiries about the financial strength
of tenants, and relies upon the client to advise if tenants are in default of
rental payments, or where there appear grounds for concern. In the context of
investment property, where covenant strength is significant, such assumptions
that affect the valuation approach will be commented upon in the valuation
section of the report. The Valuer will assume that appropriate enquiries were
made when leases were originally exchanged, or when consent was granted to
tenants to assign or underlet, and that tenants are therefore not in breach of
covenant.

 

4.MEASUREMENTS

 

4.1Unless otherwise stated, we have relied upon the Built up Area (BUA) of the
premises derived from reference to the Krooki permission, which is akin to
current market practices in the Sultanate of Oman. Should these areas differ
from measurements carried out in accordance with the Code of Measuring Practice
as issued by the Royal Institution of Chartered Surveyors, this would affect the
reinstatement cost appraisal and we reserve the right to review accordingly.

 

5.TOWN PLANNING, HIGHWAYS AND OTHER STATUTORY REGULATIONS

 

5.1The Valuer will carry out such inspections and investigations as are in the
Valuer’s professional judgment appropriate and possible in the circumstances. It
is an assumption that the property and its value are unaffected by any matters
which would be revealed by replies to the usual enquiries or Statutory Notice
and that neither the property nor its condition, nor its use, intended use, is
or will be unlawful. It is recommended that verification is obtained from the
client’s solicitors that:

 

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a.the position is correctly stated in the report;

b.the property is not adversely affected by any other decisions made or
conditions prescribed by Local Authorities/ Municipality or other duly
authorised governmental department; and

c.that there are no outstanding Statutory Notices.

 

5.2The valuations are prepared on the basis that the premises comply with
statutory regulations, including fire and building regulations.

 

5.3Where it is apparent that access to the property is not direct from the
public highway, or where there are published road proposals, the Valuer will
make appropriate comments.

 

6.LEGAL ADVICE

 

6.1The Valuer shall, unless otherwise expressly agreed, rely upon information
provided by the client and / or the client’s legal or other professional
advisors relating to tenure, leases and all other relevant matters. The Valuer
will assume that good Title can be shown and that the property is not subject to
any unusual or onerous restrictions, encumbrances or outgoings. It is
understood, where relevant, that the client will be obtaining a report on Title
which, if in conflict with the valuation report, should be referred to the
Valuer for further consideration. No responsibility or liability is accepted for
the true interpretation of the legal position of the client and other parties.
Any interpretation of legal documents and legal assumptions should be checked by
the client or suitably qualified person, if relied upon.

 

7.INSURANCE REINSTATEMENT COST (As Requested)

 

7.1Our opinion is a broad estimate of reinstatement cost for insurance purposes
and should be used as guidance only, subject to:

 

a.the buildings in their present form (unless otherwise stated);

b.buildings being constructed as proposed to be completed;

c.including the cost of clearance and professional fees but excluding:

i.Loss of rent: and / or

ii.Cost of alternative accommodation for the reinstatement period.

iii.Cost of decontamination of the land.

 

8.CONFIDENTIALITY

 

8.1The report will be provided for the stated purpose and for the sole use of
the client. The Valuer accepts responsibility to the client alone that the
report will be prepared with the skill, care and diligent responsibility to be
expected of a competent Valuer and accepts no responsibility whatsoever to any
parties other than the client. Any third parties rely upon the report at their
own risk. Neither the whole nor any part of the report nor any reference to it
may be included in any published document, circular or statement nor published
in any way without the Valuer’s written approval as to the form and context in
which it may appear.

 

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9.GENERAL ASSUMPTIONS

 

9.1Unless otherwise stated all items normally associated with the valuation of
land and buildings are reflected in the valuation and reinstatement costs to the
extent that they existed at the date of inspection, including:

 

Fixed air-conditioning; hot water system; lighting; mains services supplying
sprinkler systems and associated equipment; water; electricity; gas and steam
circuits not serving industrial or commercial processes; sub-station buildings;
lifts and permanent structures including crane rails where forming an integral
part of the building structure; drains; sewers and sewerage plants not primarily
concerned with treating trade effluent; air conditioning/comfort cooling except
where part of a computer installation or primarily serving plant and machinery;
suspended ceilings; carpets, perimeter trunking; raised floors and fixed
demountable partitions except where these are tenant’s fixtures.

 

9.2Unless otherwise specified the following items are excluded:

 

All items of process plant and machinery, tooling and other equipment not
primarily serving the building; cranes, hoists, conveyors, elevators, structures
which are ancillary to, or form part of an item of process plant and machinery;
sewerage plant primarily concerned with treating trade effluents; air
conditioning/comfort cooling where part of a computer installation or primarily
serving plant and machinery; and water, electricity, gas, steam and compressed
air suppliers and circuits serving industrial and commercial processes.

 

9.3Unless otherwise specified no allowance is made for the cost of repairing any
damage caused by the removal from the premises of items of plant, machinery,
fixtures and fittings.

 

9.4No deductions are made for taxation or costs of realization.

 

9.5Our valuation assumes that all electronically operated or electronically
controlled equipment at the property is not or will not be adversely affected by
any computer virus or date related programming problems.

 

10.BASES OF VALUATION

 

The definitions of the various valuation bases are set out within VPS 4 of the
RICS Valuation - Professional Standards 2014 (Global Edition) (or as amended),
which in turn refers to the International Valuation Standards (IVS) and are
reproduced in part below:

 

In accordance with the IVS definition, a basis of value is a statement of the
fundamental measurement assumptions of a valuation.

 

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The following bases of value are recognised by the RICS Standards:

·market value

·market rent

·investment value (worth)

·fair value – International Financial Reporting Standards definition

·fair value – International Valuation Standards definition.

 

The IVS also include definitions on special value and synergistic value.

 

10.1MARKET VALUE

 

10.1.1The definition of market value as defined in IVS Framework paragraph 29
is:

 

“the estimated amount for which a property should exchange on the valuation date
between a willing buyer and a willing seller in an arm’s length transaction,
after proper marketing and where the parties had each acted knowledgeably,
prudently and without compulsion.”

 

10.1.1Market value is the basis of value that is most commonly required, being
an internationally recognised definition. It describes an exchange between
parties that are unconnected and are operating freely in the marketplace and
represents the figure that would appear in a hypothetical contract of sale, or
equivalent legal document, at the valuation date, reflecting all those factors
that would be taken into account in framing their bids by market participants at
large and reflecting the highest and best use of the asset. The highest and best
use of an asset is the use of an asset that maximises its productivity and that
is possible, legally permissible and financially feasible.

 

10.1.2It ignores any price distortions caused by special value or synergistic
value. It represents the price that would most likely be achievable for an asset
across a wide range of circumstances. Market rent applies similar criteria for
estimating a recurring payment rather than a capital sum.

 

10.1.3In applying market value, regard must also be had to the conceptual
framework set out inIVS Framework paragraphs 30-34 Market Value (see below),
which includes the requirement that the valuation amount reflects the actual
market state and circumstances as of the effective valuation date.

 

10.1.4Paragraphs 30 to 35 of the International Valuation Standards (IVS)
Framework produced by the IVSC state:

 

“The definition of market value shall be applied in accordance with the
following conceptual framework:

 

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(a)“the estimated amount” refers to a price expressed in terms of money payable
for the asset in an arm’s length market transaction. Market value is the most
probable price reasonably obtainable in the market on the valuation date in
keeping with the market value definition. It is the best price reasonably
obtainable by the seller and the most advantageous price reasonably obtainable
by the buyer. This estimate specifically excludes an estimated price inflated or
deflated by special terms or circumstances such as atypical financing, sale and
leaseback arrangements, special considerations or concessions granted by anyone
associated with the sale, or any element of special value;

 

(b)“an asset should exchange” refers to the fact that the value of an asset is
an estimated amount rather than a predetermined amount or actual sale price. It
is the price in a transaction that meets all other elements of the market value
definition at the valuation date;

 

(c)“on the valuation date” requires that the value is time-specific as of a
given date. Because markets and market conditions may change, the estimated
value may be incorrect or inappropriate at another time. The valuation amount
will reflect the actual market state and circumstances as at the valuation date,
not those at any other date;

 

(d)“between a willing buyer” refers to one who is motivated, but not compelled
to buy. This buyer is neither over eager nor determined to buy at any price.
This buyer is also one who purchases in accordance with the realities of the
current market and with current market expectations, rather than in relation to
an imaginary or hypothetical market that cannot be demonstrated or anticipated
to exist. The assumed buyer would not pay a higher price than the market
requires. The present owner is included among those who constitute “the market”;

 

(e)“and a willing seller” is neither an over eager nor a forced seller prepared
to sell at any price, nor one prepared to hold out for a price not considered
reasonable in the current market. The willing seller is motivated to sell the
asset at market terms for the best price attainable in the open market after
proper marketing, whatever that price may be. The factual circumstances of the
actual owner are not a part of this consideration because the willing seller is
a hypothetical owner;

 

(f)“in an arm’s length transaction” is one between parties who do not have a
particular or special relationship, eg parent and subsidiary companies or
landlord and tenant, that may make the price level uncharacteristic of the
market or inflated because of an element of special value. The market value
transaction is presumed to be between unrelated parties, each acting
independently;

 

(g)“after proper marketing” means that the asset would be exposed to the market
in the most appropriate manner to effect its disposal at the best price
reasonably obtainable in accordance with the market value definition. The method
of sale is deemed to be the most appropriate to obtain the best price in the
market to which the seller has access. The length of exposure time is not a
fixed period but will vary according to the type of asset and market conditions.
The only criterion is that there must have been sufficient time to allow the
asset to be brought to the attention of an adequate number of market
participants. The exposure period occurs prior to the valuation date;

 

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(h)“where the parties had each acted knowledgeably, prudently” presumes that
both the willing buyer and the willing seller are reasonably informed about the
nature and characteristics of the asset, its actual and potential uses and the
state of the market as of the valuation date. Each is further presumed to use
that knowledge prudently to seek the price that is most favourable for their
respective positions in the transaction. Prudence is assessed by referring to
the state of the market at the valuation date, not with benefit of hindsight at
some later date. For example, it is not necessarily imprudent for a seller to
sell assets in a market with falling prices at a price that is lower than
previous market levels. In such cases, as is true for other exchanges in markets
with changing prices, the prudent buyer or seller will act in accordance with
the best market information available at the time;

 

(i)“and without compulsion” establishes that each party is motivated to
undertake the transaction, but neither is forced or unduly coerced to complete
it.

 

10.1.5“The concept of market value presumes a price negotiated in an open and
competitive market where the participants are acting freely. The market for an
asset could be an international market or a local market. The market could
consist of numerous buyers and sellers, or could be one characterised by a
limited number of market participants. The market in which the asset is exposed
for sale is the one in which the asset being exchanged is normally exchanged.

 

10.1.6“The market value of an asset will reflect its highest and best use. The
highest and best use is the use of an asset that maximises its potential and
that is possible, legally permissible and financially feasible. The highest and
best use may be for continuation of an asset’s existing use or for some
alternative use. This is determined by the use that a market participant would
have in mind for the asset when formulating the price that it would be willing
to bid.

 

10.1.7“The highest and best use of an asset valued on a stand-alone basis may be
different from its highest and best use as part of a group, when its
contribution to the overall value of the group must be considered.

 

10.1.8“The determination of the highest and best use involves consideration of
the following:

 

(a)to establish whether a use is possible, regard will be had to what would be
considered reasonable by market participants,

(b)to reflect the requirement to be legally permissible, any legal restrictions
on the use of the asset, eg zoning designations, need to be taken into account,

(c)the requirement that the use be financially feasible takes into account
whether an alternative use that is physically possible and legally permissible
will generate sufficient return to a typical market participant, after taking
into account the costs of conversion to that use, over and above the return on
the existing use.

 

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TRANSACTION COSTS

 

10.1.9“Market value is the estimated exchange price of an asset without regard
to the seller’s costs of sale or the buyer’s costs of purchase and without
adjustment for any taxes payable by either party as a direct result of the
transaction.”

 

10.2MARKET RENT

 

10.2.1Market rent as defined in IVS 230 Real Property Interests paragraph C9 is:

 

“the estimated amount for which an interest in real property should be leased on
the valuation date between a willing lessor and a willing lessee on appropriate
lease terms in an arm’s length transaction, after proper marketing and where the
parties had each acted knowledgeably, prudently and without compulsion.”

 

10.2.2Paragraphs C10 and C11 of the International Valuation Standards (IVS) 230
Real Property Interests produced by the IVSC state:

 

“The commentary given for the similar definition of market value in the IVS
Framework can be applied to assist in the interpretation of market rent. In
particular, the estimated amount excludes a rent inflated or deflated by special
terms, considerations of concessions. The “appropriate lease terms” are terms
that would typically be agreed in the market for the type of property on the
valuation date between market participants. A valuation of market rent should
only be provided in conjunction with an indication of the principal lease terms
that have been assumed.

 

“The contract rent is the rent payable under the terms of an actual lease. It
may be fixed for the duration of the lease or variable. The frequency and basis
of calculating variations in the rent will be set out in the lease and must be
identified and understood in order to establish the total benefits accruing to
the lessor and the liability of the lessee.”

 

10.2.3Paragraphs 1.3.3 to 1.3.5 of the commentary within VPS 4 of the RICS
Valuation – Professional Standards 2014 (Global edition) state:

 

“Market rent will vary significantly according to the terms of the assumed lease
contract. The appropriate lease terms will normally reflect current practice in
the market in which the property is situated, although for certain purposes
unusual terms may need to be stipulated. Matters such as the duration of the
lease, the frequency of rent reviews and the responsibilities of the parties for
maintenance and outgoings will all impact the market rent. In certain countries
or states, statutory factors may either restrict the terms that may be agreed,
or influence the impact of terms in the contract. These need to be taken into
account where appropriate.

 

19

 

 

“Market rent will normally be used to indicate the amount for which a vacant
property may be let, or for which a let property may re-let when the existing
lease terminates. Market rent is not a suitable basis for settling the amount of
rent payable under a rent review provision in a lease, where the actual
definitions and assumptions have to be used.

 

“Valuers must therefore take care to set out clearly the principal lease terms
that are assumed when providing an opinion of market rent. If it is the market
norm for lettings to include a payment or concession by one party to the other
as an incentive to enter into a lease, and this is reflected in the general
level of rents agreed, the market rent should also be expressed on this basis.
The nature of the incentive assumed must be stated by the valuer, along with the
assumed lease terms.

 

20

 

 

 

INVESTMENT VALUE (Investment Value may also be known as Worth)

 

10.2.4Investment value as defined in IVS Framework paragraph 36 is:

 

“the value of an asset to the owner or a prospective owner for individual
investment or operational objectives.”

 

10.2.5Investment value may also be known as worth. IVS Framework paragraph 37
provides further commentary on this definition:

 

“This is an entity-specific basis of value. Although the value of an asset to
the owner may be the same as the amount that could be realised from its sale to
another party, this basis of value reflects the benefits received by an entity
from holding the asset and, therefore, does not necessarily involve a
hypothetical exchange. Investment value reflects the circumstances and financial
objectives of the entity for which the valuation is being produced. It is often
used for measuring investment performance. Differences between the investment
value of an asset and its market value provide the motivation for buyers or
sellers to enter the marketplace.”

 

10.3FAIR VALUE

 

10.3.1There are two recognised definitions of fair value:

 

(a)the definition adopted by the International Accounting Standards Board (IASB)
in IFRS 13:

 

“The price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date.”

 

(b)The definition settled by the IVSC in IVS Framework paragraph 38:

 

“The estimated price for the transfer of an asset or liability between
identified knowledgeable and willing parties that reflects the respective
interests of those two parties.”

 

10.3.2It is important to recognise that the two definitions of fair value are
not the same

 

10.3.3The guidance in IFRS 13 includes:

 

“Overview of fair value measurement approach

 

The objective of a fair value measurement is to estimate the price at which an
orderly transaction to sell the asset or to transfer the liability would take
place between market participants at the measurement date under current market
conditions. A fair value measurement requires an entity to determine all of the
following:

 

21

 

 

·the particular asset or liability that is the subject of the measurement
(consistently with its unit of account)

·for a non-financial asset, the valuation premise that is appropriate for the
measurement (consistently its highest and best use)

·the principal (or most advantageous) market for the asset or liability

·the valuation technique(s) appropriate for the measurement, considering the
availability of data with which to develop inputs that represent the assumptions
that market participants would use when pricing the asset or liability and the
level of the fair value hierarchy within which the inputs are categorised.”

 

10.3.4The references in IFRS 13 to market participants and a sale make it clear
that for most practical purposes the concept of fair value is consistent with
that of market value, and so there would be no difference between them in terms
of the valuation figure reported.

 

10.3.5Paragraphs 40 to 42 of the IVS Framework state:

 

“For purposes other than use in financial statements, fair value can be
distinguished from market value. Fair value requires the assessment of the price
that is fair between two identified parties taking into account the respective
advantages or disadvantages that each will gain from the transaction. It is
commonly applied in judicial contexts. In contrast, market value requires any
advantages that would not be available to market participants generally to be
disregarded.

 

“Fair value is a broader concept than market value. Although in many cases the
price that is fair between two parties will equate to that obtainable in the
market, there will be cases where the assessment of fair value will involve
taking into account matters that have to be disregarded in the assessment of
market value, such as any element of special value arising because of the
combination of the interests.

 

22

 

 

“Examples of the use of fair value include:

 

      a.

 

b.determination of a price that is fair for a shareholding in a non-quoted
business, where the holdings of two specific parties may mean that the price
that is fair between them is different from the price that might be obtainable
in the market,

 

c.Determination of a price that would be fair between a lessor and a lessee for
either the permanent transfer of the leased asset or the cancellation of the
lease liability.”

 

10.4SPECIAL VALUE

 

10.4.1The IVS Framework provides a definition and commentary for special value.
It must be noted that this is not a basis of value that is recognised by the
RICS. Paragraphs 43 to 46 of the IVS Framework state:

 

“Special value is an amount that reflects particular attributes of an asset that
are only of value to a special purchaser.

 

“A Special purchaser is a particular buyer for whom a particular asset has a
special value because of advantages arising from its ownership that would not be
available to other buyers in the market.

 

“Special value can arise where an asset has attributes that make it more
attractive to a particular buyer than to any other buyers in a market. These
attributes can include the physical, geographic, economic or legal
characteristics of an asset. Market value requires the disregard of any element
of special value because at any given date it is only assumed that there is a
willing buyer, not a particular willing buyer.

 

“When special value is identified, it should be reported and clearly
distinguished from market value.”

 

23

 

 

10.5SYNERGISTIC VALUE

 

10.5.1The IVS Framework provides a definition and commentary for synergistic
value. It must be noted that this is not a basis of value that is recognised by
the RICS. Paragraph 47 of 66the IVS Framework states:

 

“Synergistic value is an additional element of value created by the combination
of two or more assets or interests where the combined value is more than the sum
of the separate values. If the synergies are only available to one specific
buyer then it is an example of special value.”

 

24

 

 

11.ASSUMPTIONS AND SPECIAL ASSUMPTIONS

 

11.1Paragraph 2 of VPS 4 of the RICS Valuation – Professional Standards 2014
(Global Edition) states:

 

“An assumption – as defined in the IVS – is made where it is reasonable for the
valuer to accept that something is true without the need for specific
investigation or verification.”

 

Paragraphs 48 to 51 of the IVS Framework state:

 

“In addition to stating the basis of value, it is often necessary to make an
assumption or multiple assumptions to clarify either the state of the asset in
the hypothetical exchange or the circumstances under which the asset is assumed
to be exchanged. Such assumptions can have a significant impact on value.

 

“Examples of additional assumptions in common use include, without limitation:

 

·an assumption that a business is transferred as a complete operational entity,

·an assumption that assets employed in a business are transferred without the
business, either individually or as a group,

·an assumption that an individually valued asset is transferred together with
other complementary assets,

·an assumption that a holding of shares is transferred wither as a block or
individually,

·an assumption that a property that is owner-occupied is vacant in the
hypothetical transfer.

 

“Where an assumption is made that assumes facts that differ from those existing
at the date of valuation, it becomes a special assumption. Special assumptions
are often used to illustrate the effect of possible changes on the value of an
asset. They are designated as “special” so as to highlight to a valuation user
that the valuation conclusion is contingent upon a change in the current
circumstances or that it reflects a view that would not be taken by market
participants generally on the valuation date.

 

“Assumptions and special assumptions must be reasonable and relevant having
regard to the purpose for which the valuation is required.”

 

12FORCED SALES AND MARKETING CONSTRAINTS

 

12.1Paragraph 52 of the IVS Framework provides the following commentary on
forced sales:

 

“The term “forced sale” is often used in circumstances where a seller is under
compulsion to sell and that, as a consequence, a proper marketing period is not
possible. The price that could be obtained in these circumstances will depend
upon the nature of the pressure on the seller and the reasons why proper
marketing cannot be undertaken. It may also reflect the consequences for the
seller of failing to sell within the period available. Unless the nature of and
the reason for the constraints on the seller are known, the price obtainable in
a forced sale cannot be realistically estimated. The price that a seller will
accept in a forced sale will reflect its particular circumstances rather than
those of the hypothetical willing seller in the market value definition. The
price obtainable in a forced sale has only a coincidental relationship to market
value or any of the other bases defined in this standard. A “forced sale” is a
description of the situation under which the exchange takes place, not a
distinct basis of value.”

 

25

 

 

12.2Where we have been instructed to give our opinion on the estimated price at
which a property would exchange in a forced sale, we refer to the RICS Valuation
– Professional Standards 2014 (Global edition). These standards confirm that
“Forced Sale Value” is no longer recognised and must not be used.

 

12.3If we have been instructed to provide an assessment on this basis we are
able to provide the same opinion based upon investment value or worth, which
reflects a diminution in market value to reflect a special assumption that the
sale period is unreasonable. In this circumstance we have assumed that the
vendor is willing to accept a price below the market value to achieve a quicker
sale due to the need to raise money or extinguish a liability by a given date.
We have no responsibility for giving any guarantee as to the accuracy of the
opinion of worth.

 

12.4By its nature, any opinion of the price at which a property would transact
in a forced sale is an estimate of the above mentioned reduction from market
value. In our reports, we adopt an arbitrary figure based upon 70% of the market
value for agricultural property, 75% of the market value for residential
property and 80% of the market value for commercial and industrial property,
unless stated otherwise within our report.

 

13COMPLAINTS PROCEDURE

 

Arabian Real Estate L.L.C. has a written complaints procedure. A copy is
available on request.

 

14RICS MONITORING

 

The Valuation and Report may be subject to monitoring under the conduct and
disciplinary regulations of the Royal Institution of Chartered Surveyors.

 

26

 

 

APPENDIX II Limiting Conditions

 

This property valuation and report is subject to the following conditions:

 

■Neither the whole nor any part of this valuation and report or any reference to
it may be included in any published document, circular or statement nor
published in any way without our prior written approval of the form and context
in which it may appear.

 

■Unless stated otherwise information on which this valuation has been based has
been supplied to Arabian Real Estate LLC by Omagine LLC, this information is
believed to be reliable but the we accept no responsibility if this should prove
not to be so. In case of information that has been obtained by our search of the
records and examination of documents or by inquiry from the Government or other
appropriate departments, it has been so mentioned.

 

■The valuer’s responsibility in connection with this valuation report is limited
to the client to whom it is addressed and to that client only. The valuer
disclaims all responsibility and will accept no liability to any other party.

 

■Our aggregate liability amount in undertaking the valuation shall in no event
exceed the amount of the fee paid under this agreement whether arising from
negligence, breach of contract or any other matter.

 

■None of the valuer’s personal employees or related companies can be personally
held liable for any claims in the event of dispute of the valuation and it is
specifically noted that Arabian Real Estate LLC is entering this agreement for
valuation as an unrelated corporate entity with no relationship with Savills or
any Savills Group related company for valuation assignments to whom the
instructing party agrees expressly that it has no recourse in the event of
dispute.

 

■The values assessed in this report for the subject property and any allocation
of values between parts of the property applies only in the terms of and for the
purpose of this report. The values assessed should not be used in conjunction
with any other assessment, as they may prove incorrect if so used.

 

■Where the values are assessed, they reflect the full contract value and no
account is taken of any liability to taxation on sale or of costs involved in
effecting sale.

 

■Any sketch, plan or map in this report is included to assist reader while
visualizing the property and assume no responsibility in connection with such
matters.

 

■The valuer is not required to give testimony or to appear in court by reason of
this valuation report, with reference to the property in question, unless
arrangement has been made thereof.

 

■The valuation reflects current master plan development options drawn up for the
project. It represents an option of value taking into account these development
assumptions. The Residual method of valuation as used is extremely sensitive to
small changes in variables such as construction costs, sales rates, expected
rates of return, timing and associated development costs. If any of these
assumptions proves incorrect the value could be materially different to what is
reported herein.

 

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APPENDIX III

Photographs

(For location identification purpose only)

 

[tsavpg_tpg29.jpg]

  

 

28

 

 

 [tsavpg_tpg30.jpg]

 

29

 

 

 

[tsavpg_tpg31.jpg] 

 

30

 

 

APPENDIX IV

 

The Project

 

The proposed development represents one of the largest integrated tourism
developments proposed to be launched in Oman since the economic ‘correction’ in
2008. It is located in a strategically very important location, one which is
central to the core commercial areas but has unique leisure offering potential
owing to its ocean front aspect.

 

The concept is to develop the key infrastructure for the site together with the
main tourism attraction of the Pearls, which will provide a land area of
approximately 60,000 square meters, together with hospitality and retail zones
of circa 300,000 square meters land coverage. Two main hotels will front the
water together with planned chalet/serviced apartment accommodation.

 

The ‘non tourism’ elements of the development will include land zoned for a
variety of residential and commercial operations, incorporating beach and
waterfront villa plots, townhouse zones, apartment locations and commercial
complex sites. The total non tourism land coverage will be circa 660,000 square
meters.

 

Support retail, recreational and residential components fringe the development
which upon completion should provide a fully integrated and self sustaining real
estate micro market.

 

In general, the design of the master plan appears well crafted and maximizes the
best use of the available and reclaimable land. The zoning appears to be
sensitive, correct in approach and it is assumed utilizes the height allowances
of the site to maximum effect.

 

The development is proposed to be rolled out in a series of phases, spread over
7 years in total. Land components as advised to us include:

 

         Land  Entertainment  Brief Description  Landmark Zone  Area  Oman
Pearl  Over Oman (Flight Simulation)  Pearl 1   314  Oman Exhibit  Oman
Attractions and Pre-Show  Exhibition 1   800  Culture Pearl  Seven Continents &
World Stage  Pearl 2   314  Culture Exhibit  Culture Attractions and Pre-Show 
Exhibition 2   625  Innovation Pearl  To Be Determined  Pearl 3   314 
Innovation Exhibit  Innovation Attractions and Pre-Show  Exhibition 3   800 
Energy Pearl  IMAX Type Energy Show  Pearl 4   314 

 

31

 

 

Energy Exhibit   Energy Attractions and Pre-Show   Exhibition 4     800   Sea
Pearl   Aquarium   Pearl 5     314   Sea Exhibit (Aquarium)   Sea Attractions
and Pre-Show   Exhibition 5     500   Earth Pearl   Wonders of the World   Pearl
6     314   Earth Exhibit (Hydroponic Garden)   Hydroponic Garden and Pre-Show  
Exhibition 6     625   Sky Pearl   Sky Runners Performance Art   Pearl 7     314
  Sky Exhibit (Aviary)   Aviary and Pre-Show   Exhibition 7     1,600   Tower 1
- Torre Arabia   Light Tower   Amphitheater     200   Tower 2 - Torre Piazza
Omani   Light Tower   Piazza     200   Tower 3 - Torre Marina   Stone Light
Tower & Water Storage   Al Bandara Marina     300   Movie & Performance Theater
  Integrated Into Entertainment Zone   Piazza     2,500   Amphitheater   Open
Air Greek Style Theater   Amphitheater     1,282   Green Room & Backstage Area  
Green Room, Backstage, VIP Lounge   Amphitheater     700   Technical Production
Studio   Technical Production, Media Broadcast   Amphitheater     500   Park
Waterwerx - (Included in Site Works)   Fibonacci Weir System   Amphitheater    
TBD   Piazza Centro Citta   Piazza Centro Citta   Piazza     13,652   Child Play
Area   Piazza Centro Citta   Piazza     100   Boardwalk (Above Concourse)   Five
Star Hotel To Sky Pearl   Boardwalk     22,400   Pearl Retail Units   Boardwalk
/ Concourse Retail   Boardwalk / Concourse     4,305   Retail Units   Boardwalk
/ Concourse Retail   Boardwalk / Concourse     2,500   Pearl Food Kiosks  
Boardwalk / Concourse Food Service   Boardwalk / Concourse     945   Pearl
Restaurants   Boardwalk / Concourse Food Service   Boardwalk / Concourse    
2,325   Omagine Guide Service (Kiosks)   Ticketing Machines, Information  
Boardwalk     200   Public Restrooms   Integrated into Exhibition Buildings  
Boardwalk     600   Concourse (Below Boardwalk)   Lower Level Promenade  
Concourse     NA   Service Corridor   Lower Level Service Access   Concourse    
NA   Personal Rapid Transit Way   Above Grade to Lower Level   Concourse     NA
  Public Restrooms   Integrated into Exhibition Buildings   Concourse     NA  
Back of House Support   Lower Level Service Access   Concourse     NA          
      60,657           Hospitality Zone         Five Star Hotel - Balcon de
Arabia   Balcon de Arabia   Amphitheater     70,000   Serviced Chalets - 2
Bedroom   Integrated into Hotel Site & Gardens   Balcon de Arabia     24,900  
Serviced Chalets - 1 Bedroom   Integrated into Hotel Site & Gardens   Balcon de
Arabia     21,900   Four Star Hotel - Albergo Teatro Historico   Key Location on
Boardwalk   Boardwalk & Marina     56,000   Serviced Apartments - 2 Bedroom (3
Floors, above Retail Base)   Overlooking Fibonnaci Pool & Canal   Boardwalk &
Marina       28,469   Serviced Apartments - 1 Bedroom (3 Floors, above Retail
Base)   Overlooking Fibonnaci Pool & Canal   Boardwalk & Marina       24,900  
Serviced Apartments - Studio (3 Floors, above Retail Base)   Overlooking
Fibonnaci Pool & Canal   Boardwalk & Marina       6,723   Four Star Hotel - Al
Bandara Marina Hotel   Al Bandara Marina   Al Bandara Marina     56,000        
        288,892           Canal Walk         Souq - High End Retail Mall   Canal
Walk   Canal Walk / Marina     13,437   Marketplace   Marketplace Building /
Café   Al Bandara Marina     160   Marina Operations Building   Al Bandara
(Village) Marina   Al Bandara Marina     670   Marina Services Building   Al
Bandara (Village) Marina   Al Bandara Marina     670           Residential
Community         Boaters' House   Restrooms, Laundry & Storage   Centre     174
                15,111  

 

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        Residential Freehold         Villa - 12 Bedroom   Single Family
Oceanfront Complex   Beachfront     16,000   Villa - 8 Bedroom   Single Family
Oceanfront Complex   Beachfront     18,000   Villa - 7 Bedroom   Single Family
Oceanview Complex   Waterview     16,800   Villa - 6 Bedroom   Single Family
Oceanview Complex   Waterview     27,792   Villa - 5 Bedroom   Single Family
Ocean Access   Water Access     121,200   Villa - 4 Bedroom   Single Family Wadi
Park   Wadi Park     102,480           Waterview, Water Access,        
Townhouse - 2 & 3 Bedroom   Attached Wadi Park   Wadi Park     93,600  
Apartments - 4 Bedroom (5 Floors, above Retail Base)   Multi-Story Apartment
Building   Beachfront/Waterview/Wadi Canal/Marina     31,540   Apartments - 3
Bedroom (5 Floors, above Retail Base)   Multi-Story Apartment Building  
Waterview/Wadi Canal/Marina     41,500   Apartments - 2 Bedroom (5 Floors, above
Retail Base)   Multi-Story Apartment Building   Beachfront/Waterview/Wadi
Canal/Marina     49,800   Apartments - 1 Bedroom (5 Floors, above Retail)  
Multi-Story Apartment Building   Waterview/Wadi Canal/Marina     14,940   Retail
First Floor - Apartment Buildings   Multi-Story Apartment Building   Wadi
Canal/Marina     31,804                 533,652                            
Residential Community         Gatehouse / Welcome   Security, Information, Site
Access   Entrance     125           Residential Community         Mosque  
Integrated Into Community   Centre     2,000           Residential Community    
    Clubhouse   Multi-function Community Facility   Centre     1,652            
    3,777                     Airport Welcome Centre   Omagine Information
Center   Muscat International Airport     NA   Welcome Office   Omagine
Information Center   Commercial District     556   Operations & Maintenance,
Security, Telecommunications   Operations, Security & Maintenance   Omagine
Service Compound     2,905   Shipping, Receiving & Storage (Break Bulk
Distribution / Storage Facility)   Operations, Security & Maintenance   Omagine
Service Compound     2,179   Incoming Services Facility   Services Headhouse  
Omagine Service Compound     0   District Cooling Plant   Disctict Cooling and
Storage Facility   Omagine Service Compound     0   Waste Water Pumping Station
  Untreated Water Pumping Station   Omagine Service Compound     0              
  5,640           Commercial         Office Building 1   Commercial Office Space
  Commercial District     33,399   Office Building 2   Commercial Office Space  
Commercial District     33,399   Office Building 3   Commercial Office Space  
Commercial District     33,399   Office Building 4   Commercial Office Space  
Commercial District     33,399                 133,596   Total Land Area (Note
includes reclaimed land area)             1,064,683  

 

33

 

 

[tsavpg_tpg35.jpg]

 

The Omagine project will be the first in kind to offer such an integration of
tourism, entertainment and support amenities and there will likely be a high
demand for residential and commercial accommodation within the development.

 

The concept for the development appears sound – supplementing the already
present coastal position with a reclaimed area, extending both tourism and
residential appeal to a large proportion of the site.

 

The Sultanate’s drive for tourism growth will likely gather momentum over the
proposed development period, coinciding with the opening of the new
International Airport and general diversification of the economy. Securing key
known names from the hospitality industry for the hotel and serviced apartment
components will likely add greatly to the marketability of the residential
components. Quality resort property worldwide is undergoing significant value
growth at present and there is no reason why Oman, assuming political and
economic sustained stability should not follow this global trend.

 

34

 

 

There will likely be a high regional investor demand for specific land elements
within the project once core infrastructure and hospitality elements are in
situ. Accordingly, projected future land values as stated herein are likely to
be achievable.

 

To assess the viability of the proposed development, it is pertinent to review
the status of past and potential future projects of similar nature in Oman,
these being limited to the Integrated Tourism Complexes. Below is presented a
brief synopsis of the ITC market, its current state and outlook.

 

35

 

 

APPENDIX V

 

INTEGRATED TOURIST DEVELOPMENTS

 

The ITC’s were an attempt to drive tourism growth into the Sultanate through
hotel development, freehold property rights and employment creation. Their
success has to date been limited, with many of the projects damaged by the
global economic downturn in 2008. The “Arab Spring” also had a dampening effect
on Oman’s real estate from a wider global perspective and as such significant
upward movement of values in the short term is unlikely. However high demand
from rental tenants now underpins the investment appeal of property within the
ITC’s with rental growth driving capital values and a resurgence of regional
buyer demand is likely to underpin the medium and longer term success of the
ventures.

 

ITC SUMMARY

 

As part of the Sultanate’s economic diversification plan, the opening up of
specific areas for focused tourism development were permitted in 2007. In such
zones, now known as Integrated Tourism Complexes, the laws allowing freehold
ownership of land and property were extended to allow all Nationalities to so
own.

 

Under the Ministerial and Royal Decrees passed in 2007, the precedents for
ownership were laid down and in summary, all Nationalities can own land and
property within designated Integrated Tourist Developments with unrestricted
rights of use and transfer. The mode of ownership may be by whatever means the
developer allows, whether freehold or leasehold.

 

The results of these laws brought about a foray of development activity and the
Ministry of Tourism from 2007 onwards actively encouraged the promotion and
investment into the ITC’s. The granting of licenses for such developments
reached a peak in early 2008 when over 14 licenses had been issued. Work
commenced on a select number of these developments but the economic slowdown in
summer 2008 and the subsequent worldwide economic crises brought the progress of
the majority of these developments to an abrupt halt. Of the intended schemes,
only 6 actually commenced construction and sales.

 

The worldwide events of that time curtailed the ambitious development plans that
at one stage were seen as threatening an oversupply of residential properties
onto the market. The credit crunch, with its associated tightening of
availability of funds for such speculative development has effectively acted as
a brake for the runaway speculative driven growth of these developments.

 

36

 

 

Oman is now faced with the reality of a number of semi completed “boom time
projects.” These projects, whilst appearing to meet the demands of the market at
the time really only catered to a very small element of end users. Over
ambitious master planning will likely lead to ongoing management and maintenance
issues at these developments which will ultimately act as a barrier to excessive
capital growth.

 

The remaining developments that have as yet not commenced need to carefully
analyse their target markets and build to the end user and investor
requirements. This will ultimately lead to a slower delivery of product and
ensure that demand and supply remains more in balance than in the peak boom
years.

 

Project Name  Status  Timing of sales Planned and Ongoing       Muscat Golf and
Country Club  Phase 1 sold and occupied  Phase 2 released early 2013. 98 Villas
The Wave  7 Launches to date  Releases 1-4 sold. Reehan Gardens /      
Residences and Marina apartments latest       release mid 2014 Shangri La Bar al
Jissa  Phase 1 partly sold and occupied  Phase 2 Apartment release on hold
Salalah Beach  Under construction  Ongoing releases Jebel Sifa  Handover
commenced late 2012  No new launches announced Al Madina A Zarqa  Construction
on hold  Cancelled – being restructured as Al       Madina al Noor Advanced
Planning       Omagine  DA agreed – due for commencement  2015 onwards    2015 
  Naseem a’Sabba  Master planning underway  Postponed owing to market conditions
Saraya Bander Jissah  Infrastructure works commenced  Launched 2014 Q3 Barka
Resort  Design complete  Proposed launch 2015 Postponed/Cancelled /Scaled down 
     Hayoot Beach m - Musandum  Cancelled  Limited to hotel only Ras Al Hadd
Resort – Sur  Only Hotel to be developed  Limited release in Q3 2014 Khasab
Resort  Cancelled  Limited to hotel only Salam Resort Spa - Shinas  Indefinitely
postponed  Restructured Salam Resort Spa – Yiti Beach  Indefinitely postponed 
Restructured Castle Yenkit  Postponed 3 years  On hold indefinitely PDO
redevelopment – Muscat  Cancelled - restructured  Now being undertaken directly
by PDO

 

It is estimated that values have now stabilized at approximately 80% from their
peak levels and have bottomed at circa RO. 900 per square meter for normal, not
luxury ITC product and maximizing at RO. 1,500 per square meter for luxury
property such as Bar al Jissah Development.

 

Although there is no direct evidence of further downward value pressure
occurring, this is purely as a result of the very low number of sale
transactions concluded over the last 12 months.

37

 

 

Market confidence remains wary and with an absence of overseas investors for off
plan property, the market is relying on domestic and GCC buyers. The latter two
parties are continuingly conservative in their outlook at present, owing largely
to their over exposure in regional real estate over the boom period. Product
offerings that do not suit the taste and aspirations of this target market can
also be held accountable for low transaction levels and it is foreseen that
better designed, lower density projects could rejuvenate interest levels.

 

Projects that did commence, sell and develop prior to the market slowdown
include:

 

Project Name   Location   Status           Muscat Hills Golf & Country Club  
Airport Heights   Phase 1 complete and occupied. Golf Course complete.        
Phase 2 now launched. Reported sale of +50% of released stock (unverified).    
      The Wave   Azaiba/Seeb   Releases 1-4 handed over. Ongoing releases of
apartments and scaled down villas.           Bar al Jissah Residences   Bander
Jissa   Construction defects and affected approximately 25% of the units and
proportional handover delayed. Dusk sector fully handed over the habited. 80% of
larger villas remain unsold.           Jebel Sifa (Muriya)   Sifa   Delayed
construction – hotel and marina now open and handover of apartments underway.
Limited villa handovers with low demand and lack of facilities cited as reason.
          Salalah Beach (Muriya)   Salalah   Delayed construction – hotel and
60% of property now handed over but continuing legal disputes ongoing          
Al Madina a’Zarqa   Sawadi   Project has been abandoned and Restructuring
underway with government buy back complete. To be re launched as Al Madina al
Noor

 

Projects that failed to commence prior to the economic collapse but are
proceeding (assumed)

 

Project   Location   Comments           Saraya Bander Jissah   Bander Jissa  
With a management team in place and ongoing sponsorship of local events, limited
sales were released in Q3 2014 at values circa RO 1,000 psm. Main releases
planned over 2015           Barka Resort   Barka   Launch uncertain but still
planned 2015           Naseem a’Zaba   Seeb   Late entrant – probable launch
late 2016. Master plan design well underway           Omagine (Journey of Light)
  Seeb   Development Agreement signed Q4 2014

 

38

 

 

Projects that failed to commence prior to the market slowdown and are not
proceeding (or have been substantially down sized or delayed)

 

Project Name   Location   Status           Yiti Beach - Sama Dubai   Yiti  
Original project cancelled and re structuring of ownership and master plan now
underway.           Castel Yenkit   Yenkit   Indefinitely postponed          
Qatari Diar RAH   Ras al Had   Significantly cut back to hotel element only    
      Khasab World   Musandam   Indefinitely postponed           The Malkai  
Barka   Indefinitely postponed

 

Summary of ITC’s

 

At present, the average sizes of apartments offered for sale in Oman ITC
developments to date is:

 

Apartment   Average Unit Size   Largest   Smallest               1 Bedroom   95
  137   75               2 Bedroom   140   170   121               3 Bedroom  
220   285   166               4 Bedroom   250   n/a   n/a

 

The average sale price for each unit type in Integrated Tourist Areas including
latest Wave release is recorded as follows:

 

    Average Sale Price per   Highest price psm   Lowest Price psm Apartment  
square meter   RO   RO               1 Bedroom   RO. 1,019   1,197   615        
      2 Bedroom   RO. 1,1,37   1,353   604               3 Bedroom   RO. 1,042  
1,335   606               4 Bedroom   RO. 923   n/a   n/a

 

39

 

 

Current Villa sizes offered for sale within ITC developments in Oman to date are
recorded as follows:

 

Villa   Average Unit Size   Largest   Smallest               3 Bedroom   280  
325   255               4 Bedroom   449   530   292               5 Bedroom  
458   589   345

 

Average sale rates are as follows:

 

    Average Sale Price per   Highest price psm   Lowest Price psm Villa   square
meter   RO   RO               3 Bedroom   RO. 1,085   1,335   615              
4 Bedroom   RO. 1,190   1,404   709               5 Bedroom   RO. 1,333   2,462
  986

 

The ongoing developments :

 

Muscat Hills Golf and Country Club

 

Location: Seeb, Muscat (located inland from Seeb Airport) Developer: Muscat Golf
Projects L.L.C. Land size: 2 million square meters Properties: Phase 1& 2 - 147
villas & 125 apartments   Commercial Zone (sub developed) – up to 600 apartments
from 2015 Project Investment: RO. 30 million Phase 1 RO. 60 million Ownership
type: Absolute freehold Features: Golf course, 5 star hotel, spa, health club,
three restaurants. Status: Under construction Projected completion date: Phase 1
- Mid 2010 (completed). Phase 2 commencement 2013

 

Description

 

The project, centrally located in Capital Area Muscat, was the first Integrated
Tourist Complex development in Oman. Spearheaded by the late HH Sayeed Kais bin
Tariq Al Said the project was conceived to provide the first and most
challenging green golf course in Oman.

 

To support the cost of the golf amenities, villas and apartments were developed
throughout the course. Sales commenced early in 2004. The project can be
considered to have sold out within 12 months of phase 1 launch. Buyer
demographics have shown that 30% of the properties were purchased by GCC
nationals and 70% by non GCC, predominantly European (96% UK, 4% Dutch). The
project has achieved an average 150% value increase since commencement of sales
in 2004.

 

40

 

 

Since the original sales of this project, a small resale market has evolved and
changed slightly the owner demographics. Phase 2 (148 units) was launched in
January 2013 and although sales performance is not confirmed it is believed to
have sold up to 70% of its off plan offering to date.

 

[tsavpg_tpg42.jpg]

 

Product Phase 1

 

Pricing

 

Product  No Units  

Initial sales

launch price

(average) 2004

 

Current resale

value Q 4 2014

 

Current RO.

Per square

meter

  

Current $

per square

meter

  2 Bed Apartments   100   RO. 85,000  RO. 135,000   931    2,420  3 Bed
Penthouses   25   RO. 180,000  RO. 300,000   1,052    2,735  3 Bed Villas   30  
RO. 150,000  RO. 350,000   1,077    2,800  4 Bed Villas   25   RO. 175,000  RO.
400,000   1,142    2,971  5 Bed Villas   25   RO. 190,000  RO. 525,000   1,400  
 3,465 

 

Phase 2

 

Product  Bedrooms  

Offering Price

2/2013 to present

  Area  

RO. Per

square meter

  

Current $

per square

meter

  Acacia   5   RO. 590,000   565    1,044    2,714  Rivea   5   RO. 495,000 
 505    980    2,548  Palm Vista   4   RO. 445,000   480    927    2,410 
Freana   4   RO.380,000   460    826    2,147  Lake Terrace   4   RO.380,000 
 405    938    2,438  Carteri   4   RO. 325,000   420    773    2,009  Sacra 
 4   RO. 275,000   350    785    2,041 

Note: Price excludes extras such as swimming pool

  

41

 

 

[tsavpg_tpg43a.jpg]

 

In addition, a release of 20 linked villas was undertaken in late 2012 by a
third party developer at Muscat Hills. The units compromise modern style
townhouses with almost 100% built up area to land plot but each home has a small
plunge pool. Competitively priced, 100% sell out was achieved by early 2013.

 

[tsavpg_tpg43b.jpg]

 

      Sale Price end     RO. Per   Current $ per  Product  Bedrooms  2013 
Area   square meter   square meter  Hilai  3  RO. 195,000   273    715    1,859 
Qamar  4  RO. 225,000   328    686    1,783  Samaar  5  RO. 250,000   327  
 688    1,788  Toos  5  RO .270,000   290    862    2,241 

 

In 2014, a zone of land fronting the project, with ITC status but without the
benefit of being within the community was sub divided into plots of circa 7,500
square meters. These plots have been onward sold to independent investors with
the benefit of commercial/residential planning consent. It is understood that
values approaching RO 600 per square meter have been achieved for these lands.

42

 

 

Rental Values

 

There is a high demand for rental space at the development and this has lead to
a strengthening of values over the last 12 months. There is currently 100%
occupancy.

 

   Estimated Current Market  Achieved Rental   Initial yield on   Current 
Product  Value RO  Value RO   original value   yield  2 Bed Apartments  RO.
135,000   9,600    8.85%   7.11% 3 Bed Penthouses  RO. 300,000   15,000  
 8.33%   5.0% 3 Bed Villas  RO. 350,000   19,200    12.8%   5.48% 4 Bed Villas 
RO. 400,000   19,800    11.31%   4.95% 5 Bed Villas  RO. 525,000   21,600  
 11.37%   4.11%

 

Comments

 

This development was the first and can be regarded as the most “troubled”
development. Financing issues caused considerable delays and phase 2 has been
significantly delayed. However, at time of reporting it can be stated that
Muscat Hills is the most sought after ITC development from both a rental and
purchase perspective. Irrespective of this, re-sales activity has been low
reflecting the attractive yields shown on original purchase price and the lack
of sellers as a result.

43

 

 

The Wave

 

Development details

 

Location: Seeb, Muscat (on coast close to Seeb Airport) Developer: Majjid Al
Futaim Land size: 2.5 million square meters Properties: 1,630 villas /
townhouses & 2,770 apartments Project Investment: RO 310 million Ownership type:
Absolute freehold Features: Beachfront location, golf course, 300 berth marina,
15,300 square meters of retail space, 40,000 square meters of office space, four
5 & 4 star hotels. Status: Under construction Projected completion date: 2017
(phased development with regular releases of properties)

 

The Wave Muscat was the first joint venture development between Oman Business
(Pension Funds and Government) and an overseas investor/developer – Majid al
Futtaim. The site covers an area of approximately 2.5 million square meters and
is master planned to accommodate four 5 star hotels, a golf course, marina,
commercial area and up to 4,000 residential units.

 

Since the first release of properties in mid 2006, nearly 2,000 properties have
so far been handed over. Sales commenced at the boom time when secondary trading
was abundant and this resulted in significant price enhancement. However by
release 4 in 2008, the pricing had breached buyer tolerance levels and the sales
momentum slowed considerably.

 

Buyers in releases 4 and 5 (in some instances) began to walk away from their
purchase contracts, sacrificing the 10% down payment, comfortable in the
knowledge that they could buy a completed property in the earlier releases and
still profit from the situation. Later releases of scaled down product ensured
sales continued within buyer tolerance levels.

 

The latest’s release of villas known as Reehan Residences consisted of 3 and 5
bedroom townhouses and villas, of which it is understood approximately 70% has
been sold since launch in summer 2014. Significantly smaller plot sizes and
denser development characterize this release.

 

44

 

 

Product (Releases to date)

 

      Initial sales launch  Current sales  Current RO.         Gross internal 
price (average)  price (average)  Per square   Current $ Per  Product  area 
2006  Q4 2014  meter   Square meter  1 Bed Apartment  82 sqm  RO. 89,000  RO.
100,000   1,220    3,171  2 Bed Apartment  101 sqm  RO. 129,000  RO. 150,000 
 1,485    3,861  3 Bed Apartment  166 sqm  RO. 179,000  RO. 210,000   1,265  
 3,289  2 Bed T/H  151 sqm  RO. 85,000  RO. 180,000   1,192    3,099  3 Bed T/h 
235 sqm  RO. 110,000  RO. 200,000   851    2,213  3 Bed Villas  239 sqm  RO.
181,000  RO. 280,000   1,171    3,044  4 Bed Villas  270 sqm  RO. 206,000  RO.
300,000   1,111    2,888  5 Bed Villas  345 sqm  RO 268,000  RO. 450,000 
 1,304    3,391  Reehan Residences 2014                    5 Bed Villa  441 sqm 
   RO. 440,000   998    2,595  3 Bed Townhouse  265 sqm     RO. 252,000   950  
 2,470 

 

Of interest was the launch of ocean front properties in 2007, the only such
release to date. A formal auction of the lots was held and buyer activity was
frenetic. The chart below represents the actual sale value bid, later reduced by
the developer as buyer enthusiasm was clearly out of control at the event.
However it demonstrates the high demand base for waterfront, quality property.

 

Auction - Beach Front Properties 1/12/2007

 

Plot No     Land Area   Built Up   Sale Price RO.   $ PSM   RO PSM           
               411  Beach Front   851    715    2,350,000    8,545    3,287 
370  Beach Front   794    555    2,250,000    10,541    4,054  400  Beach Front 
 788    447    2,550,000    14,832    5,705  404  Beach Front   840    715  
 2,150,000    7,818    3,007  408  Beach Front   841    555    1,850,000  
 8,667    3,333  412  Beach Front   756    450    1,800,000    10,400    4,000 
406  Beach Front   800    515    1,850,000    9,340    3,592  402  Beach Front 
 756    540    1,800,000    8,667    3,333  373  Beach Front   763    515  
 1,800,000    9,087    3,495  375  Beach Front   765    447    1,750,000  
 10,179    3,915  407  Beach Front   929    715    2,050,000    7,455    2,867 
413  Beach Front   840    555    2,000,000    9,369    3,604  409  Beach Front 
 770    540    1,800,000    8,667    3,333  410  Beach Front   847    555  
 2,000,000    9,369    3,604  Average Price per square meter   9,310    3,581 

 

45

 

 

The previous glut of re sales has reduced and values appear firm in the
secondary market. As the development matures, the marina and retail is
completed, it is becoming a highly demanded place to live and as such rental
values are firming. On average, yield returns from completed properties are
amounting to sub 5% per annum.

 

46

 

 

Shangri La Barr Al Jissah Resort & Spa

 

Location: Barr Al Jissah Beach (15 minutes drive to the SE of the Central
Business District) Developer: Zubair Corporation Land size: 500,000 square
meters Properties: 11 villas, 56 townhouses Project Investment: RO 150 million
Ownership type: Absolute freehold Features: Beachfront location, marina, souk,
retail space, three luxury hotels. Status: Hotel resorts completed with
residential component under construction. Actual completion date: January 2010

 

Situated at the Barr Al Jissah bay the Shangri La hotel development was
developed as a joint venture between the Oman Government and the Zubair
Corporation. The site covers an area of approximately 500,000 square meters with
a choice of three 5 star resort hotels and spa facilities. Following the success
of the hotel development, residential units were created directly by Zubair
Group and were released for sale in 2007 end. The properties were sold in a fast
manner with price enhancement of 30% achieved on a square meter basis over the
week long selling period.

 

Product

 

Product  Gross internal area  No. Units  % of Product Offering  4 Bed
Townhouses  292 sqm  56   79% 4 Bed Villas  530 sqm  4   5.5% 5 Bed Villas  589
sqm  11   15.5%

 

Pricing

   Gross              internal  Initial sales launch price  Current asking sales
price  Current RO. Per square  Product  area  (average) 2007  (average) Q4 2014 
meter  4 Bed T/H  292 sqm  RO. 300,000 +  RO. 450,000   1,541  4 Bed T/H Cliff
edge  292 sqm  RO. 400,000 +  RO. 650,000   2,226  Luxury Villas  530 sqm  RO.
1,000,000  RO. 1,200,000   2,264  Superior Villas  589 sqm  RO. 1,250,000  RO.
1,600,000   2,716 

 

Note: For Superior Villas this is asking price with no sale evidence at this
level

 

Ongoing structural defects at the property in zone Dawn have lead to investor
concerns and this has effectively halted the re-sale market at this area. Phase
2, 65 luxury apartments is due for release by 2015.

 

47

 

 

Rental Rates

 

There remains limited letting activity at the development to date. On account of
the time travel distance from the business district areas of Muscat, demand has
been low for all property types and this reflects in the lower than originally
expected rental levels.

 

   Current sales price (average)  Current rental value      Product  Q4 2014 
RO   Initial Yield  4 Bed T/H  RO. 450,000 +   19,200    4.26% Luxury Villas 
RO. 1,000,000   30,000    3.0% Superior Villas  RO. 1,600,000   54,000    3.375%

 

This development saw significant capital growth with RO. 2,570 per square meter
being achieved for the townhouses at the peak (early 2008). However, ongoing
delivery delays and questionable quality standards have damaged the project’s
reputation and few sales are being achieved even at the current (considered too
low) values. It is anticipated that when the ongoing buyer/management concerns
are finalized that the development will show higher rates overall.

 

[tsavpg_tpg49.jpg]

 

48

 

 

APPENDIX VI

 

Development Agreement (Linkage) & Land Title Papers

 

Schedule 1

 

Krooki; Mulkiya; Sea Area; Layout

 

Notwithstanding anything to the contrary contained anywhere else in this
Development Agreement or in the Schedules to this Development Agreement, the
Parties hereby agree that:

 

I.the Krooki dated June 16, 2014 as defined in Clause 1 and shown below as Part
A of this Schedule 1 is the Krooki for the Existing Land, and

 

II.any diagrams, drawings, photographs or the like contained in any Schedule to
this Development Agreement showing boundaries of the Existing Land different
from the boundaries shown in the Krooki are indicative only and are hereby
amended to represent and mean the boundaries of the Existing Land as
definitively shown in the June 16, 2014 Krooki.

 

49

 

 

Part A

 

Krooki dated June 16, 2014

 

[tsavpg_tpg51.jpg]

 

50

 

 

Part C

The Sea Area

 

The Parties hereby agree as follows:

 

The area constituting the Sea Area, in respect of which an Environmental Impact
Assessment has beeneffected, will evolve and change shape as the Project is
Developed and Reclaimed Land and Created Waterways come into existence.

 

The dimensions and location of the Sea Area are indicatively shown in the
drawing below and the Ministry of Tourism (“MOT”) hereby agrees and consents to
the final dimensions and location of the Sea Area, provided that, the Project
Company receives the prior written Approval for such final dimensions and
location from the Ministry of Environment and Climate Affairs within 12 Months
after the Effective Date.

 

Subject always to this Development Agreement and the Law the Project Company
shall have no claim or right of action against the MOT in the event that the
Ministry of Environment and Climate Affairs does not Approve the dimensions and
location of the Sea Area as contemplated by this Development Agreement as stated
below in this Part C of Schedule 1.

 

The Sea Area at any time is never Reclaimed Land or Created Waterways and it
will be that rectangular area of the Gulf of Oman indicatively shown below and
which rectangle:

 

(i)has a side (the “First Side”) that is co-existent with that line in the Gulf
of Oman which is the high high water mark (“HHWM”) adjacent to theKrooki
boundary line facing the Sea Area (the “Outer Boundary”), and

 

(ii)has an opposite and parallel side (the “Second Side”) the coordinates of
which are perpendicular to the First Side and subject to the approval of the
Ministry of Environment and Climate Affairs, is one hundred thirty (130) meters
in a north-easterly direction from the First Side, and

 

(iii)is bounded on its other two sides by:

 

a)a side (the “Third Side”) which is that line originating at the point that is
the north-western boundary point of the Krooki and running perpendicular to and
through the First Side up to that point where it intersects the Second Side, and

 

b)a side (the “Fourth Side”) which is parallel to the Third Side and which
Fourth Side is that line originating at the point that is the south-eastern
boundary point of the Krooki and running perpendicular to and through the First
Side up to that point where it intersects the Second Side.

 

The Sea Area on the Execution Date is indicated by the drawing below in Part C
of this Schedule 1 and the Parties hereby agree that the “Sea Bed” means that
part of the Project Area that at any time has the same coordinates as the Sea
Area andwhich is under the Sea Area.

51

 

 

[tsavpg_tpg53.jpg]

  

(All dimensions shown are indicative only)

52

 

 

Part D

 

Layout Plan:

 

Aerial Photograph and

Contour survey map

 

[Note: The Parties agree that this is an indicative Layout Plan only and shall
at all times be subject to any Approvals which the Law requires from the
relevant Government Authorities.]

 

[tsavpg_tpg54.jpg] 

 

53

 

 

[tsavpg_tpg55.jpg] 

 

54

 

 

[tsavpg_tpg56.jpg] 

 

55

 

 

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56

 

 

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57

 

 

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58

 

 

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59

 

 

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60

 

 

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61

 

 

[tsavpg_tpg63.jpg] 

 

62