The Bahrain property market is a strategic real-estate market in the GCC. How is it holding up in light of present economic difficulties?
International real-estate consultancy Cluttons, in their Winter 2016 Bahrain Property Outlook report says that the Bahrain real estate market showed resilience to end 2016 with continued stability. We sat down with Harry Goodson-Wickes, head of Cluttons in Bahrain and Faisal Durrani, head of Research in Cluttons to explore this trend.
Goodson-Wickes, says that “economic fragility and the ongoing impact of the low oil price environment have curtailed job creation levels and dampened overall sentiment and this will continue to hamper the Kingdom’s property market during the fourth quarter, continuing into H1 2017”. Households in Bahrain have been faced with some very challenging headwinds over the past 12-18 months with subsidy removals and job security fears driving down budgets. Not surprisingly, demand for luxury property is down. Q3 marked the sixth consecutive quarter of sluggishness for retail rents. With the exception of Amwaj Islands, where there was a marginal BD 50 per month rise in rents for four-bedroom villas, no other submarket in the Kingdom registered any change in rents during Q3. However, this is still better than expected given the present economic crisis.
Durrani said that the GCC support fund, which was used to drive growth in the non-oil sector, was used the way it was intended to—and it has kept residential property stable. The GCC support fund is an aid package set up by the Gulf Cooperation Council for Bahrain. The job-generating measure will give $10 billion to the country to upgrade housing and infrastructure over a 10-year period.
Short term blips can be overlooked
This will explain why there is a continued boom in infrastructure projects despite the flatness of the market. The Director and Chief Executive of Bahrain Bay Development, Gagan Suri said that “Large real estate master developments are being planned with long-term durations and longer investment horizons”. He adds “the size of such mega projects is a part of Bahrain’s resilience, despite global volatility.”
How is the construction sector coping with the fiscal crisis? Bahrain Bay Development, a master developer, says that it can overlook short-term blips in the market, including fluctuating oil prices because master planned developments are unlike consumer goods that are quick to get absorbed. Diyar Al Muharraq, the $2.5bn waterfront city development at Bahrain Bay comprising seven islands, reflects sustained investor appetite for the property sector in the region, says its Chief Executive, Maher Al Shaer. Currently the construction sector reflects positive momentum, he adds.
This is not only a matter of “Build it and they will come” mentality. Though Bahrain is slower compared to Dubai in terms of growth, it has a target which is the Vision 2030. The Vision 2030 states among other things that “The country will have outstanding road, sea, and air connections to global markets. It will accelerate private sector involvement in the provision of public infrastructure services”. It is rumored that the Hyperloop is on its way to Bahrain soon. For those who don’t know, it’s exactly what it sounds like. Hyperloop is a new way to move people and things at airline speeds for the price of a bus ticket. It’s on-demand, energy-efficient, and safe. You can say it’s a broadband for transportation.
Tourism to spur growth in Real Estate
The Bahrain government is trying to rebrand the country to drive tourist numbers up. A number of tourism infrastructures such as new five star hotels are being built, and others are being developed and rebranded like Al Jazeera Beach, Hawar Islands, and Marassi beach. These destinations will cater to mid-market families as beach-type hotels. The vision for Bahrain tourism is to create memorable destinations suitable for the whole family who will stay far longer than the weekender. This particularly applies to Saudi tourists who are being targeted in this inbound tourism drive.
Reidin (an online information product tracking service for real estate deals and transactions) reports that the tourism sector in Bahrain is likely to expand generating $1bn in revenue by 2020. This trend, together with government’ decision to permit foreigners to acquire 100 percent ownership of businesses in Bahrain will further spur growth in the real estate sector, it said.
Is it still safe to invest in Bahrain?
With the present market conditions, is Bahrain still a good place to invest in? Durrani and Goodsone-Wickes think so. Though there is caution in investing in Bahrain at the moment, there’s a cost advantage as compared to Dubai, which is becoming more expensive. A four-bedroom villa in Bahrain is comparable in price to a two-bedroom flat in Dubai. There is also an estimated 8% tax free return on investment. In addition, Bahrain offers a lifestyle that is cosmopolitan, safe, and relaxed. The new real-estate developments that are coming up mean that investors have a wide array of real-estate to choice from.
Goodson-Wickes, explains, “Our experience shows that quality and perceived value for money continue to drive interest in newly launched schemes, suggesting that tenants are very much in the driving seat and can cherry pick from a range of options on the market.
The country’s appeal has also been boosted by being voted as the fourth best country for expats to live world-wide, and the top destination among Gulf Countries by HSBC bank, stated Cluttons in its 2015/16 Property Outlook report.
According to Al Shaer “The GCC holds a prime place as an attractive investment haven, particularly for international investors. There is a fast growing population with high spending power and the quality of life also remains very appealing for foreigners seeking good employment opportunities”.
We asked Durrani and Goodsone-Wickes where they would invest in giving the current market trends. Bahrain and Dubai was on the top of their list. Downtown Dubai is a good investment with an established location in a safe market (albeit with a lower yield).
In terms of infrastructure investment, there were three options. The first is key worker accommodation in the UAE. When five-star hotels are being built for example, the managers would need to find accommodation for all their key workers. With the recent drive for infrastructure development in the UAE, quality accommodation for key workers is needed on a large scale. Cluttons believes this would drive foreign direct investment into the UAE.
Affordable student accommodation in the UAE is another real-estate investment that is not properly harnessed. Khaleej Times said “Purpose-built student accommodation is a relatively new concept here (in the UAE), and the demand for student accommodation in the past has been low; but according to a recent “GCC Education Industry Report” by Alpen Capital earlier this year, student numbers in schools and universities is projected to grow by 4.1% annually, by 2020”. The estimated yield of investment for student housing is 20% according to Cluttons.
In Bahrain, infrastructure development could take the form of affordable housing. With 40,000 families and 15,000 rentals, the demand is definitely there. The Cluttons report said that tenants are seeking “centrally located, affordable housing”, and this trend is likely to persist.