Underpinned by a government-funded housing strategy, Bahrain’s residential construction segment has recorded solid expansion in recent years. The kingdom signed its first-ever real estate public-private partnership (PPP) in 2012, and established a new finance scheme in 2013, offering subsidised mortgages and bolstering private sector development. Although the government has pledged to provide thousands of new units for its citizens, the housing backlog stands at over 54,000 applications, and longterm demand is expected to outpace supply, particularly as the sector works to overcome infrastructure and land allocation constraints. The government is pushing ahead with a wide-ranging infrastructure investment drive totalling some $22bn over the next four years, according to comments made by Kamal bin Ahmed, the minister of transport and acting CEO of the Bahrain Economic Development Board (EDB), in October 2014, and these projects are expected to have a considerable long-term impact on both the construction industry and its private sector players.
Public Projects
State-funded housing projects are likely to continue to drive growth in the kingdom’s construction industry, and the government announced in December 2012 that it will allocate up to BD580m ($1.54bn) for 16,000 new homes in a bid to ease the affordable housing shortfall, funding which was incorporated into the 2013/14 state draft budget, and planned to be allocated from both the state and the $10bn GCC Gulf Development Programme.
Government-assisted housing is divided into two categories: social housing purchased by the government from private developers and affordable housing, in which units are sold on the open market at a cost of no more than BD120,000 ($318,000), with buyers receiving assistance from the Social Housing Finance Fund (see Real Estate chapter). In 2011 the Ministry of Housing (MoH) provided 6000 homes, and it targeted the construction of 7000 homes in 2012, according to the EDB. There are 8717 social housing units in the government’s pipeline, as well as 983 affordable housing units.
Private Participation
The private sector plays a critical role in both segments, and the government has signed a number of construction contracts within the social housing segment in recent years with companies including Nass Group, Manara Developments and Al Hedaya. In May 2014, for example, Diyar Homes, the third-party developer of a number of affordable housing units within the Diyar Al Muharraq mixed-use project, awarded a construction contract for 196 affordable units to Al Hedaya. In the same month, Nass Group was awarded an BD18m ($47.7m) contract to provide 483 affordable housing in the East Hidd City housing project, which will have a total of 4523 units. The first phase will see construction of 483 housing units within 18 months, while the second phase entails a minimum of 400 units.
Bahrain’s residential market is expected to record a significant increase in the supply of available stock as a result of these agreements, while future planned projects could have considerable impact on private sector contractors. Manara Developments was one of the developers that signed an agreement with the MoH allowing Social Housing Scheme beneficiaries to purchase units from its projects Wahat Al Muharraq phase two and three and Tubli Gardens phase four.
Research firm Timetric reported that during the third quarter of 2013, the MoH allocated BD3bn ($7.95bn) towards the construction of new housing until 2017, including the first phase of Durrat Marina, a $1.3bn mixed-use development; the second phase of Wahat Al Muharraq, which includes 139 affordable villas and was reported to be almost completely pre-sold as of May 2014; and a BD13m ($34.45m), 128-villa project at Durrat Al Areen, developed by Kuwait’s Al Zamil International Real Estate Company. At the same time, estate agent Cluttons reported government-provided affordable housing construction is ongoing at sites in Sitra, Samaheej and Galali, with 1508 units expected to be delivered in Samaheej and Sitra by 2015. The Samaheej development will provide 530 residential units in 2014, while 978 units are expected to be delivered in Sitra by 2015. However, the EDB reported in 2013 that 8000 new housing applications are submitted annually in Bahrain; as such, demand for developments is expected to outstrip supply well into the future.
Public-Private Partnership
In 2012 the Bahraini government signed its first-ever housing PPP with Naseej Properties. The landmark BD208m ($551.2m) agreement will see 2800 affordable and social housing units constructed on the reclaimed Al Madina Al Shamaliya islands (also known as the North Bahrain New Town) and Al Luwzi by 2017. Naseej will offer 165 affordable villas and townhouses for sale on the open market, priced between BD96,000 ($254,400) and BD109,000 ($288,850), and 202 affordable apartment units priced between BD44,000 ($116,600) and BD84,000 ($222,600), allowing it to cross-subsidise the remaining 2433 social housing units, which are slated for distribution by the MoH. Considered to be one of the largest of its kind in the ministry’s history, and unique in the Gulf, the PPP involves a number of private sector players: Ithmaar Development Company will act as the development manager; Ithmaar Bank finalised $450m in funding for the project in 2013; AECOM will serve as master planner, partnering with Ansari Engineering to design the houses; and Davis Langdon is acting as the cost consultant.
The Naseej agreement has set the stage for future PPPs in real estate. In June 2014 the housing minister, Bassem Al Hamer, said a second major PPP in the sector would be announced in the near future, with the development set to be part of a mega-project involving construction of four new cities. With some housing applications dating back as far as 1993, the projects will likely receive a warm welcome, although Al Hamer also told local media that existing projects are facing challenges due to staffing shortages.
Land Challenges
Land allocation is one of the most significant constraints facing housing expansion in Bahrain. For many Bahrainis, the preferred method of obtaining housing involves building on owned plots of land, adding extensions to existing villas as the family expands. However, land plots remain the subject of speculative investment activity, and prices are often inflated, leaving many plots both over-valued and unaffordable for the majority of Bahrainis, as well as private developers.
The aftershocks of the 2008-09 global financial crisis, which saw the price of land drop by up to 60% in the most affected northern areas, continue to pose a challenge to land allocation today. “The cost of construction came down after the financial crisis, but the land was bought at a premium five-plus years ago, so a private developer can’t afford to build low-cost property because they don’t have government-funded land,” Tony Connor, managing director of Pentacon Management, told OBG.
Land reclamation offers a solution to the problem, and presents substantial dredging opportunities for contractors. Nass Contracting, for example, was awarded a BD21.39m ($56.68m) contract for dredging works at the planned East Hidd City housing project in 2011, while the UAE’s National Marine Dredging Company was awarded at BD89.1m ($236.12m) dredging contract as part of the East Sitra Town housing project in April 2014. Newly reclaimed island projects including Diyar Al Muharraq are currently selling parcels of land for residential use within master-planned communities; the Sarat project, for example, sold about 100 plots following its 2013 launch.
However, projects such as these have no timetable for building and there are no obligations imposed on buyers in terms of building deadlines. Exacerbating existing challenges, real estate research company CBRE reported in 2013 that land reclamation work is becoming increasingly expensive, with deep seas and limited sand supply casting doubts on the long-term viability of ongoing reclamation work.
Infrastructure Challenge
Gaps in infrastructure have also affected timely delivery of affordable housing units, and forward movement on state-provided primary infrastructure will be critical to meeting new housing demand. “Construction activity on the project started in the early part of the third quarter of 2014. Although we have not announced specific construction timelines or phasing of the project, we expect on time completion and the delivery of the residential units,” Mark Haikal, head of business development and property services at Naseej, told OBG.
However, the government is set to investment a total of around $22bn in infrastructure over the next four years, which will include a number of road, sewage and power projects that will help bolster development and facilitate efforts to expand social housing. If the work on infrastructure can keep pace with the new housing developments that are either planned or in the works, the kingdom could see existing constraints ease significantly over the coming decades.
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