They set great store by their roundabouts in Oman. All along the highway that leads down the coast towards Muscat, the sprawling waterside capital, their bizarre decorations provide welcome relief from the sand and scrub: a simple geometric form, perhaps, or, more curiously, a giant teapot or incense burner. One even has a replica of the ship in which Sinbad the sailor, the sultanate’s most famous (if probably fictitious) son, set off on his voyages.

Beautification, as the locals term it, is a watchword for the oil-rich sultanate, which stretches down the southeastern coast of the Arabian peninsula towards the Yemeni border. While Dubai, Oman’s brash neighbour to the west, has been transformed beyond recognition over the past decade by one of the largest skyscraper-building programmes known to man, this former British protectorate has pursued a gentler development path. Slowly but surely, though, it too is opening its doors to overseas property buyers – who want Dubai’s sun and sand, but not its bling and mirrored high-rises.

“You know you are in Arabia when you’re here,” says Janet Burridge, who moved to Oman just over a decade ago when her husband, John, a former Premier League goalkeeper, got a job coaching the football-mad country’s national team. She now heads Savills estate agency’s new operation in Muscat. “Few Gulf cities have that magic Arabian feel that you get especially in Mutrah, the old town.” Oman is controlled by the ruling family, the al-Saids, led by Sultan Qaboos bin Said, 68, who in 1970 ousted his father, Said bin Taimur, in a bloodless coup with the apparent assistance of the British army, which maintains close ties with the country. Said bin Taimur, who spent the last two years of his life in the Dorchester hotel, London, was an eccentric figure who banned his subjects from wearing sunglasses and restricted education and foreign travel.

His son – referred to simply as HM by the expat community – has embarked on a thorough programme of modernisation. The oil money has led to investment in grandiose road schemes (not just those roundabouts) and other infrastructure. The coastal forts, built by the Portuguese when they occupied Muscat in the 16th and 17th centuries, have been beautifully restored.

The ruling family’s fortunes have prospered with those of the country as a whole: there is no better symbol of their wealth than HM’s 500ft yacht, anchored conspicuously off the Corniche. The second largest in the world, it has room for a 50-piece orchestra. There have also been the inevitable grandiose gestures: when a summit of the Gulf Cooperation Council was held at the Al Bustan hotel, in Muscat, in December, the tops were blown off rocks to give the visiting Gulf leaders a better view of the sea.

The oil, first commercially exploited in 1967, will not last for ever, so the sultan has diversified, initially into tourism – which until a few years ago was almost nonexistent – and more recently into property, which traditionally could be bought only by Omanis and nationals of other Gulf states.

Recent changes in the law have allowed foreigners to buy, but only in “integrated tourist complexes” – high-end developments typically built around five-star hotels, marinas and golf courses. These come with residence visas for the buyer, his or her immediate family and – this being the Gulf – two domestic servants. With no income or capital gains tax levied, it is a tempting prospect.

The first properties to be completed are in the Wave, a development of what by 2013 should be 4,000 homes on the beachfront near Muscat airport. Lavishly appointed and well finished, they are western in style, but with a nod to Arabian sensibilities – which means a formal reception room for guests, near the entrance, to avoid unwanted interaction with the womenfolk, who can retreat into the interior.

The properties are pressed closely together on modest plots, however, which makes them more likely to appeal to resident expats or those looking for a buy-to-let than to holiday-home buyers. Price start at about £210,000 for a 82-square-metre one-bedroom flat, rising to £750,000 for a 345-square-metre five-bedroom villa.

More luxurious is the nearby Muscat Hills Golf & Country Club, which will have 98 villas of between 350 and 467 square metres – each with a private pool overlooking the course – and 100 low-rise flats. Conceived a decade ago, it was due to be finished in 2007, but now seems unlikely to be ready until the end of the year. Although the first phase sold out long ago, Savills has a resale five-bedroom villa for £1.18m.

Sir Charles Shaw, 52, a businessman from Berkshire, is among those who have already bought. An army officer, in the early 1980s he was based in Oman, which was where he met his wife, Sonia, 50. She now runs Shaw Travel (shawtravel.co.uk), which specialises in the sultanate. The couple jumped at the chance to buy, paying a little more than £377,000 for a five-bedroom villa. “This is the most wonderful area in the whole of the Middle East, with very special people,” Charles says. They intend to spend as much time as they can in the house and will try to let it out when they’re not there – they hope to charge up to £5,600 a week in high season.

Other projects under way are more obviously targeted at holiday buyers. Among them are Barr Al Jissah, southeast of the capital, where the coastline is at its most spectacular – and where a 589-square-metre “executive villa” can cost as much as £5.65m – and Malkai Barka, a country-club-style development 30 minutes’ drive north of the airport, which Savills will be marketing this year. Prices will start at £780,000 for a 217-square-metre suite, rising to £3.77m for a 500-square-metre villa. Even more ambitious is Al Madina A’Zarqa (the Blue City), a whole new town, master-planned by Norman Foster’s practice, to be built on a 32 sq km site northwest of Muscat. It is intended eventually to be home to 200,000 people.

Oman has not been immune to the chill wind that has blown in from Dubai, where a combination of speculative buying and overdevelopment has added bite to the global credit crunch, sending property prices tumbling. Inevitably, the speculators have been at work here, too: when the Wave was launched two years ago, bouncers had to keep order among the crowds queuing on the pavement for the right to put down a deposit. Omani banks have been much more conservative, however, which has tempered the excesses, and the number of homes built is a fraction of that in Dubai.

Savills; 020 7016 3740, www.savills.co.uk/abroad

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers