Bahrain’s construction and real estate sectors have become a major focus in the kingdom’s drive to diversify its economy. The industries are bouncing back strongly from a number of challenges in recent years, including the Covid-19 pandemic-related slowdown, supply chain disruptions and cost volatility. Global conflict and uncertainties have also affected the market, while inflation and higher interest rates have had an impact on demand. Looking ahead, with a number of projects already in progress, the next several years are expected to be a busy time for real estate and construction initiatives in the kingdom.
Structure & Oversight
Since June 2022 the Ministry of Housing and Urban Planning (MHUP) has regulated and overseen all construction activity in Bahrain. The ministry is the result of a merger between the Ministry of Housing and the Urban Planning and Development Authority (UPDA), the latter of which still offers its own services. As of September 2024 the minister of housing and urban planning was Amna bint Ahmed Al Romaihi. The MHUP operates alongside several other ministries. These include the Ministry of Works (MoW), which is responsible for public sector construction projects, such as roads, drainage networks, and the building and maintenance of public buildings; and the Ministry of Municipalities Affairs and Agriculture (MMAA), which has a range of duties within Bahrain’s four governorates, including making improvements to the kingdom’s regulatory framework, and proposing related legislation to increase the efficiency and quality of services and projects. The MMAA’s responsibilities include the Benayat Building Permit Portal, which acts as a one-stop shop for builders to receive permits, check the status of pending applications and pay any related fees.
Another important entity in the construction sector is the Ministry of Transportation and Telecommunications (MoTT), which oversees strategic work related to roads, bridges and causeways, as well as to IT infrastructure and aviation. In addition, the Bahrain Economic Development Board ( Bahrain EDB) is one of the key bodies in implementing national development plans, such as Bahrain Economic Vision 2030 and the post-pandemic Economic Recovery Plan (ERP). The Bahrain EDB works with the government and investors to attract funding and identify opportunities for economic growth.
The Real Estate Regulatory Authority (RERA), which commenced operations in March 2018, is responsible for regulating Bahrain’s real estate sector and protecting the rights of property owners. In December 2023 RERA launched the National Real Estate Databank (Aqari), which provides users with information on transactions from 12 different government entities, including the Bahrain Tourism and Exhibitions Authority, the Central Bank of Bahrain (CBB), the Electricity and Water Authority (EWA), the Information & eGovernment Authority, the Ministry of Industry and Commerce, the MMAA, the MoW, the Survey and Land Registration Bureau (SLRB) and the UPDA. The aim of the Aqari platform is to increase transparency in the real estate sector and boost investor confidence, while also collating data from a variety of agencies and ministries. In May 2024 RERA published a tender to make improvements to the portal, including the potential implementation of technologies such as artificial intelligence to enhance the efficiency of its work. These government bodies operate within a framework of commercial, environmental and legal codes administered by other ministries.
Support Initiatives
A crucial programme for Bahrainis looking to purchase property is Mazaya, which allows beneficiaries to borrow money from a range of partner banks. According to the requirements of the programme, only Bahraini citizens who are at least 21 years of age and earn a monthly salary ranging from BD600 ($1590) to BD1200 ($3180) are eligible to participate and receive funding. Mazaya finances up to 100% of a home’s value, up to a maximum value of BD120,000 ($318,000), as well as allows flexible repayment periods lasting as long as 25 years. The programme is oriented towards helping first-time homeowners and lower-income families purchase property.
The Labour Market Regulatory Authority (LMRA), issues work permits for expatriate employees, and regulates and licenses recruitment agencies, employment offices and expatriate sponsors. The LMRA also runs the Labour Fund (Tamkeen), a semi-autonomous government agency charged with developing the private sector and supporting Bahraini employment. Figures from the LMRA show that the construction sector was responsible for most new work permit issuances for foreigners in Bahrain in the fourth quarter of 2023. During that quarter some 22% of the 45,553 work permits issued went to construction workers, with wholesale and retail (16%), and accommodation and food services (11%) the industries with the next-highest proportions of work permits issued to foreigners.
Bahrain is working to localise its labour force, a process known as Bahrainisation. The kingdom sets quotas for the employment of Bahraini nationals in each sector of the economy. These quotas vary according to company size and the line of business. For example, the target for real estate management is 35%, regardless of the size of the business, and 5% for construction companies working on roads and railways, and utility and civil engineering projects.
Construction Projects
Major development initiatives under Bahrain’s ERP include the creation of five new cities located on artificial islands: Fasht Al Jarim, Suhaila Island, Fasht Al Adhm, Gulf of Bahrain and the Hawar Islands. These projects together are set to increase the kingdom’s total land area by some 60%, with the largest – Fasht Al Jarim – covering some 183 sq km, and including a new airport, a dedicated logistics zone, a tourism centre and residential areas. The ERP also envisages a range of tourism developments, such as the $330m Bilaj Al Jazayer, a city in the south-west of the kingdom oriented towards visitors that is being built by the Bahrain Real Estate Investment Company (Edamah) – the real estate arm of Mumtalakat, Bahrain’s sovereign wealth fund. The Hawar Islands, another Edamah project, will also be home to Mantis Bahrain Hawar Island, a new resort that is scheduled to open to visitors in early 2025.
Other projects in the pipeline include works in the US Trade Zone, the 472,000-sq-metre Aluminium Downstream Zone and the Bahrain Petroleum Company Modernisation Programme, the last of which aims to increase crude refining capacity while improving energy efficiency. In the health care sector, there is the King Abdullah Bin Abdulaziz Medical City; King Hamad American Mission Hospital, which opened in January 2023; and Dilmunia Health City Development, which proposes an artificial island north of Bahrain International Airport (BIA) with a series of hospitals. The ERP also plans for the building of an engineering college and Sports City, which will be home to the kingdom’s largest stadium once finished by the end of 2025.
Transport Infrastructure
A major new project being undertaken is the $3.5bn King Hamad Causeway, a 25-km bridge connecting Bahrain and neighbouring Saudi Arabia. This is part of the kingdom’s Strategic Projects Plan launched in November 2021, which aims to spend $30bn on 22 different infrastructure developments and other priority projects. The new road connecting Bahrain with its neighbour will run alongside the existing King Fahd Causeway, with the addition of railway lines.
A third potential link to elsewhere in the GCC, the proposed Qatar Bahrain Friendship Bridge, is under discussion again after relations between the two countries thawed. The bridge would reduce travel time between the two countries from five hours to 30 minutes, and include flyovers 40 metres above sea level so that ships can pass underneath.
In addition, the ERP highlights the $2bn Bahrain Metro, which will feature 109 km of track across four lines to link the entire kingdom. The metro, designed by the MoTT in collaboration with Spanish architecture firm IDOM, will be driverless and fully automated – with seven consortiums shortlisted in September 2023 to bid on the first phase of the project. The tender for the first phase – which had not been awarded as of June 2024 – consists of two lines totalling nearly 29 km of track and serving a peak of 43,000 passengers, with 20 stations planned. The first of the two metro lines will run from BIA to the Seef district, while the second will run from Juffair to Isa Town. The metro is expected to have a major impact on real estate in these areas, as well as provide a range of construction contracts.
Housing
There are a number of major public housing projects under way, including 12,000 units to be built in Salman City. The Government Land Development Project (GLDP), also known as Sharaka, plans to add approximately 16,000 housing units to the national stock. The MHUP is the lead entity in this plan, which is being carried out jointly with the private sector, and has an overall goal of constructing 19,000 housing units for Bahrainis. Under the plan, when a designated project is completed, the developer pays the MHUP an agreed land value – with the ministry providing a buy-back arrangement for any units left unsold after a 24-month period. The project company can sell these units on a commercial basis to Mazaya or social-housing-loan-eligible beneficiaries. In the second quarter of 2023, 280 homes under the GLDP in the Madinat Khalifa Project were approved for construction, with an eventual target of nearly 1600 homes expected to be completed.
As of February 2023 roughly 3% of the eligible population had applied to the Mazaya scheme, according to Bahrain-based asset manager SICO. The programme is likely to see significant growth in the years ahead, as the kingdom’s population is forecast to grow from 1.6m in 2024 to 2.1m by 2030. This signifies a major organic growth trajectory for real estate – and housing construction – in the decade ahead. These plans and demographics provide the backdrop for construction work under the National Real Estate Plan 2021-24 (NREP), which comprises five pillars, 14 priority actions and 25 initiatives to be implemented over a four-year period. Sustainability is a key theme of the plan, with the aim being to spread environmental awareness in the sector, as well as provide incentives for sustainable projects, such as car-free streets. Transparency is an additional focus, as the plan includes the development of a new model for off-plan contracts that features the full disclosure of property-related information. Data is also crucial to the success of the plan, as it includes the establishment of the National Committee for the Real Estate Database, featuring unified standards and classifications.
Centralising and streamlining procedures for funding, marketing and developing real estate projects is another theme of the NREP. A central committee will combine different aspects of a project’s development, with a limit placed on the estimated value of off-plan sales a developer can use to gain financing for a project. There is also an emphasis on quality development, with the aim of boosting the capabilities of real estate companies and employees in the sector, attracting more global agencies, and developing a higher level of IT skills and innovative methods in the industry. Cooperation with the Bahrain Institute of Banking and Finance is also being used as a route to integrate financing technologies across the real estate and banking sectors.
Sector Performance
The pandemic had a negative impact on Bahrain’s construction and real estate sectors, which felt the effects of lockdowns and travel restrictions. There was disruption to supply chains, along with higher global inflation and subsequent interest rate hikes, which further impacted sector growth. The government has taken action to combat these challenges, with real estate and construction both benefitting from the ERP and additional efforts to ease the impact of higher interest rates. Bahraini interest rates have been raised in tandem with US Federal Reserve rates, as the Bahraini dinar is pegged to the US dollar.
These efforts are reflected in the performance of the real estate and business activities sector of the economy, which has shown consistent growth since the beginning of 2022 – expanding by 5.7% that year and by 4.1% in 2023. As of the end of 2023 the segment accounted for 5.4% of Bahrain’s GDP. In contrast, the construction sector reported a growth of 1.4% in 2022, but saw a contraction of 0.9% in the first half of 2023 before rebounding to end the year with overall growth of 0.8%. The sector accounted for 7.1% of Bahrain’s GDP as of the end of 2023.
“Despite the lingering effects of the pandemic, the real estate sector in Bahrain remains a cornerstone of the kingdom’s economic recovery, with mortgage financing emerging as a resilient asset class,” Khalid Abdulla, former general manager of Eskan Bank, told OBG. “The efforts that have been made by the CBB to mitigate the impact of high interest rates on project financing underscore the sector’s strategic importance amidst global volatility.”
These efforts by the CBB have included direct negotiations with mortgage lenders. In January 2024 the CBB reached an agreement with banks to cancel their plans to raise interest rates on mortgages. The government has also imposed mortgage rate caps on loans provided by programmes such as Mazaya. For example, as of February 2023 Mazaya beneficiaries could not be charged a rate higher than 6.1%.
The economy has shown considerable resilience in rebounding from the pandemic, with IMF figures showing real GDP growth of 4.4% in 2021 and 6% in 2022 after a 5.9% contraction in 2020. Geopolitical tension and recessionary pressure then saw the growth rate fall to 3% in 2023, and the IMF forecasts GDP growth to remain at 3% in 2024 as conditions ease before the growth rate drops below 3% in 2026 (see Economy chapter). The non-oil sector has led economic growth, with preliminary figures showing the non-oil economy growing by 3.4% in 2023, in contrast to the oil and gas sector contracting by 2.4%.
Real Estate Returns
Positive developments in the broader economy are reflected in the kingdom’s real estate market. Data from the SLRB revealed that the total value of real estate trading fell slightly from BD1.09bn ($2.89bn) in 2022 to approximately BD1.07bn ($2.84bn) in 2023. However, this decline was not the result of a lack of activity in the sector, as the volume of transactions increased from more than 21,600 in 2022, to more than 26,100 the following year. Much of that activity took place in the fourth quarter of 2023, with over 9000 transactions recorded in that quarter alone. The figures for the first quarter of 2024 were more moderate in comparison, at more than 6100 transactions, but such volumes dropped in April and May – with just over 3600 transactions during those two months.
In a report on the Bahrain real estate market, global consultancy CBRE Research reported that the highest average residential sales figures for 2023 were in the Capital Governorate, which recorded rates of BD765 ($2030) per sq metre. The highest average villa rates were in the Muharraq Governorate, coming in at approximately BD555 ($1470) per sq metre. In terms of residential rentals, in 2023 mid- to high-end apartment rates dropped by 1.7%, while mid- to high-end villa rates declined by 0.1%.
Supply in the real estate office market has remained stable since 2021, when the last major office building – the Bahrain Institute of Banking and Finance building in Bahrain Bay – opened for business. Office rents have remained stable, too, with grade-A rents in 2023 averaging nearly BD6 ($15.90) per sq metre per month. A further surge in supply could impact prices in 2024, as CBRE Research forecasts that the mixed-use developments Sayacorp Tower and Seef Boulevard will hit the market during the year. This same year Bahrain’s office supply is forecast to increase by around 1.1% due to new completions, while 2025 is expected to see a further expansion in office space to 1.4m sq metres in total in the kingdom.
In the retail segment, CBRE Research found that retail occupancy had increased by 1% in the second half of 2023, but the opening of new malls could offset the impact of a healthier 2023 on rental rates in terms of footfall and average occupancy rates. Rental rates dropped by an average of 4% in 2023 compared to the previous year, with the downward pressure likely to continue during 2025.
Construction Drive
MFNE data shows that total built-up area increased by 23.4% during the year, although the number of building permits issued declined by 10.8%. The expectation now is for the construction sector to continue to grow through 2025, particularly as a number of major construction projects get under way. For example, a major programme of road and bridge construction is in progress. One such initiative is the expansion of the Al Fateh Highway, which involves increasing its capacity from 87,000 vehicles per day to 140,000, as traffic along the thoroughfare is projected to reach 138,000 vehicles per day by 2030. The project also includes the building of an approximately 600-metre tunnel with three lanes in each direction, along with two flyovers. These upgrades will help lower the average time for crossing the motorway from nearly six minutes to just over four minutes, and increase the average speed of vehicles to 55 km per hour (km/h) from the previous 40 km/h. The Saudi Fund for Development (SFD) is financing the majority of the BD39.9m ($105.8m) project. In addition, in November 2023 the MoW launched a tender process for a fourth bridge connecting Manama and Muharraq, with bidding restricted to Saudi contractors as part of the SFD’s wider infrastructure investment in the kingdom.
A new greenfield airport development is also being planned to eventually replace the existing BIA, with a BD542,000 ($1.4m) contract for an initial study awarded to Dutch engineering firm Netherlands Airport Consultants in May 2023. The proposed airport, which is expected to cost 10 times more than the new terminal at BIA that opened in January 2021, will be built on a reclaimed island to the north of the current airport. The project is seen as important to the development of the kingdom’s transport capabilities, as BIA’s current infrastructure is considered inadequate in light of the country’s long-term goals for increasing its flight capacity to keep pace with increasing visitor numbers.
The Muharraq City Development Plan, which launched in the third quarter of 2023, features a number of initiatives to revitalise 1.4m sq metres in the city. These include restoring historical buildings associated with the country’s history in the pearling industry; developing 300 new and renovated housing units in the first phase of the project, with this number eventually reaching 2000 units in partnership with private sector players; building an estimated 48 km of movement corridors, which will provide shade to people walking through the district; and creating 12,000 sq metres of green space, as well as planting up to 100,000 trees.
Green Goals
In the energy sector, Bahrain has committed to its National Renewable Energy Action Plan published in January 2017. The plan aims to have an installed renewable capacity of 255 MW by 2025 and 710 MW by 2035 from a mix of solar, wind and waste-to-energy technologies – meeting 5% and 10% of the country’s energy needs by 2025 and 2035, respectively. This means a major programme of building solar farms, such as the 72-MW Sakhir solar farm, which is expected to comprise 28% of the kingdom’s 2025 goal for renewable capacity. In addition, in January 2023 Aluminium Bahrain announced it would begin installing 11,300 solar panels in its car parks and on other buildings, covering 37,000 sq metres and having a capacity of 6 MW. In December 2023 Bahrain Steel signed a memorandum of understanding with the kingdom’s EWA to implement a rooftop solar project with an eventual capacity of 100 MW.
One leading construction project is the ongoing development of Diyar Al Muharraq, a mixed-use urban area that is being built on seven artificial islands covering 10 sq km. This project has so far seen a new mall unveiled and a variety of residential and hospitality buildings, with construction of two major residential projects now in development. Other major projects that are under way include the BD200m ($530.5m) Bahrain Marina, a mixeduse development that broke ground in November 2023, with 274 freehold units, 304 hotel rooms and 1769 underground car parking spaces; the Al Wasem residential project situated on Bahrain’s northern islands that launched in September 2023; and a planned 125,000-sq-metre mixed-use development located near the main access to Amwaj Islands that will have a portion allocated for residential units.
Outlook
With a robust pipeline of construction projects, the real estate and construction sectors look set to perform positively through 2024 and 2025, as already commissioned projects continue to roll out. At the same time Bahrain has committed to expanding its real estate sector to meet the needs of its growing population and to address the kingdom’s long-term goals of economic diversification. With tourism now a major focus, the hospitality sector is likely to see increased investment in the years ahead, followed by a subsequent increase in the building of hotels, high-end apartments, shopping malls and entertainment venues.
The challenge facing Bahrain is meeting the projected rollout by increasing visitor numbers and attracting the required investment. In 2023 tourism arrivals reached 12.4m – up by more than 2.4m compared to 2022 – while tourism revenue reached BD1.9bn ($5bn). Investment from the SFD and the GCC Development Fund is also supporting progress. However, there is likely to be some downward pressure on residential and office real estate prices in the short term as more supply comes on the market. This is likely to ease as supply and demand reach equilibrium in the years ahead. Other external challenges may also impact the sector, such as fluctuating international commodity prices in construction-related materials and geopolitical tension. Overall, the period ahead looks set to be a strong one for Bahraini construction and real estate.
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