Interview: Mohammed Khalil Alsayed
How has the political unrest in Bahrain affected the real estate and construction sectors?
MOHAMMED KHALIL ALSAYED: As far as underlying demand in the real estate and construction sectors is concerned, I believe the unrest has not had an overly adverse effect.
However, what is critical is the market sentiment in various segments within these sectors. For instance, in construction, public transport infrastructure is a key segment as well as a government priority.
Another important segment is housing. If we divide the housing market into luxury, mid-market and affordable, we can draw different inferences based on market demand and preferences.
The government has signalled its strong commitment to addressing the affordable and social housing segment via its avowed public-private partnership policy, and announced its first-ever signing with a Bahrain-based consortium in January 2012.
What are the general trends with regards to construction costs in Bahrain?
ALSAYED: So far, we have not witnessed the kind of volatility in construction costs in 2012 that we saw in previous years. Materials that are sourced from outside the GCC, such as steel, are more closely related to international price fluctuations than, say, cement, which is manufactured across the GCC. Even then, cement price volatility in Bahrain was mainly due to transportation and logistics issues. Sand and aggregates are other components that have experienced price volatility, at least in Bahrain.
In general, it is natural to factor in a steady annual rise in prices for building material components, although it is accepted that in the medium to long term, Qatar and Saudi Arabia will drive up prices for different reasons. Demand for construction materials will likely see a sharp rise due to the 2022 FIFA World Cup that will be held in Qatar, while construction-led activity in Saudi Arabia in the coming years is also expected to result in demand-driven price increases.
How difficult and expensive is it to access financing for projects in the Kingdom?
ALSAYED: Project financing is not immune to the economic downturn that has been seen in various parts of the world. The recent eurozone crisis further dented hopes of a pick-up in market sentiment globally. The GCC, however, enjoys certain economic advantages. Foremost of these is the issue of liquidity in financial institutions, which is partly driven by favourable oil prices. Another issue is that many GCC countries are going in for large infrastructure projects, either greenfield or renewal of existing stock. These encompass a wide spectrum of economic segments, including social housing, rail networks, and roads and bridges.
As a consequence of the problems experienced by global banks, which were hitherto active in project financing in the region, banks in the GCC can expect to play a much larger role in this segment. Over the last several decades, many regional banks have developed internal capacities and are likely to take a lead, which will help ensure that both the sourcing and deployment of funds will benefit local economies.
What are your thoughts on the efforts by the government to come up with new rules and regulations for the property development segment?
ALSAYED: We understand that the government could be looking at various options to regulate this segment. This could include turning over parts of private developments to public access, asking private developments to build access infrastructure with minimal government support, or imposing levies on private developments. Since the property development segment is trying to emerge from the effects of the economic and political turmoil of the recent past, it would be fitting for the government to consider prospective application of new rules and regulations once stability returns to the market. Property developers have formed a body to regulate themselves, and present issues and matters affecting them to the government.
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