Bahrain: Turning a corner in real estate

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The Kingdom’s real estate sector continues to experience difficulties, with the residential, office and commercial segments all seeing little activity in the first half 2012. However, as private developers reconsider several projects currently on hold and government infrastructure projects get underway, there is a general sense that the sector may be close to a turning point.

According to the latest study on the Kingdom’s property market by CBRE, an international real estate services firm, most segments of the sector have been quiet in the second quarter of this year, but though numbers are still modest, developers are beginning to sell residential units in targeted market segments, such as middle-income villas.

“Naturally, this presents some opportunities, and the focus now is more directed towards planning for the next growth phase rather than managing the stalled environment in which most projects have found themselves recently,” the firm said in its report.

In the residential segment, CBRE stated that while there is strong demand for low-cost housing, this demand is not being met by new stock. Additionally, Bahrainis in the lower-income bracket are often not in a position to invest in such housing even if it were available, and as a consequence the rental market for relatively small, inexpensive apartments remains strong.

High land prices, which have largely been the result of speculative activity by wealthy Bahrainis and corporate investment, together with the lack of infrastructure in remote areas and high building costs, have also made it difficult for private developers to lower costs enough to meet the lower-income segment’s housing needs. As a result, they have turned their focus to the middle-income segment, where some master-planned projects have revised their schemes to attract this group.

“Sales to expatriates and investor/speculators remain minimal at the moment but may well be stimulated in the near future by the perception that the Kingdom has pressing housing needs across a variety of sectors and locations, and current prices may well represent good value in the context of likely future movements,” the report said.

While there have been some reports of a rise in the number of foreigners seeking rental accommodation, mainly due to an increase in expatriates being employed in the hydrocarbons sector, this move in the market is acutely area-specific. A recent study by Cluttons, a property consultancy, said there had been an uptick in interest in well-maintained compounds with good facilities and security, resulting in price stability rather than the general trend of falling rental costs.

Also contributing to stabilising rental costs is the lack of new properties coming on to the market, the Cluttons report said, with the limited take-up of available rental accommodation draining the supply pool. However, this has only been enough to reverse the downward movement in rents but not push them back into positive territory.

With prices having apparently stabilised at their current low levels, many landlords in the commercial and residential sectors are sitting tight at existing rates, said Mike Williams, a senior director with CBRE in Bahrain.

“Landlords are increasingly indicating they would rather leave properties vacant than accept lower rental rates, although this behaviour is not consistent throughout the market, and is largely dependent on whether properties are owned with or without leverage,” Williams told local media in late May.

One factor that may help stimulate activity in the sector, and the associated construction industry, is the government’s plan to pump $550m into fast-tracked, low-cost housing, with the programme aiming to reduce at least some of the pool of more than 50,000 families waiting for state accommodation.

However, such schemes will take time to get off the ground, as the government is having some difficulty finding suitable land for large-scale residential developments. In February, the Ministry of Housing announced its intention to clear the waiting list backlog within four years, with 4000 units scheduled to be completed in 2012 and 10,000 the following year. This will still leave a sizeable balance to deal with in the final years of the programme and represents a significant challenge.

It is unlikely there will be a significant improvement in the real estate market until there is a return to the social and economic stability that has long been the hallmark of Bahrain. Until then, the sector is widely hoped to maintain its stable holding pattern as growth begins to cautiously pick up.

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