Interview: Faisal Faqeeh
What affect will the new real estate development laws have, and how can regulation be improved?
FAISAL FAQEEH: The new laws are focused on protecting the interests of buyers, and do not have developers in mind. For this reason the laws should be re-examined, and the experience of players familiar with the market’s characteristics and current condition should be sought. Allowing for a bank guarantee instead of requiring the opening of an escrow account is one option. The way the current law works, 20% of a project’s value must be placed in escrow in order to obtain a development license. However, should a project fail, 20% is rarely enough to complete it, leaving both developers and clients vulnerable. A bank guarantee for the entire project amount would protect both investors and developers by securing the development before sales began, while still allowing for off-plan sales to create the necessary cash flow. Currently, large developers with capital are not trusted any more than first-time newcomers, which does not help to create a positive ecosystem.
The most important way to support developers is by unifying the development-related functions of the ministries and municipalities under one umbrella. It currently takes too long for developments to be approved, especially as large developments wait in the same queues as smaller ones – even single homes – and there are many separate procedures involved in the process. Moreover, if banks were incorporated, obtaining loans could be facilitated on a more formal basis, although we are looking forward to the introduction of real estate investment trusts to the market as an alternative source of funding.
It is not necessary to improve processes and regulations from scratch. In the same way that our Gulf neighbours have followed Bahrain’s leadership in many areas, we can also learn from them. Whatever happens with the new laws, it is important that developers not only provide official comments and feedback before and during implementation, but that regulators also hold workshops and training for developers to ensure that new procedures are adopted quickly and smoothly.
What is the likelihood of seeing some movement in resuming stalled projects?
FAQEEH: The problems with developments such as Marina West and Villamar have gone unresolved for too long. If something had been done promptly, they could have continued on. Now, however, after several years, all of the processes have grown far more complicated, and the developments have become problems in and of themselves. Buyers who have already paid a portion of their contracts will not be interested in paying the rest because they remain unconvinced that any developer is serious about completing. The committee recently organised to resolve these issues includes some very experienced and well-placed players, with diverse areas of expertise. However, a crucial shortcoming of the committee is its lack of experienced developers. Until the development community is involved in an official capacity, these projects can only go forward painstakingly and individually.
In what areas could the real estate sector benefit from more foreign investment?
FAQEEH: Dubai has billions of dollars in investments from the US and Europe. However, Bahrain’s market is different so expectations and strategies must be adapted accordingly. We should encourage consistent change, but it is important to note that Bahrain’s growth is slow and secure, especially in comparison to Dubai, with its 60% drop in property values.
There is still need for more high-end hotels to be added to Bahrain’s existing stock. There is a substantial gap between the very best and the next tier of hotels on the island, and we would be well-served to fill this gap in order to capture the upper market.
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