By Oliver Cornock
It will take time for Bahrain's real estate sector to start rising again across all segments, says Oliver Cornock.
While the Bahraini real estate sector may not have suffered the dramatic reversal of form experienced by many property markets across the Gulf, it has seen a fall off in activity, with the volume of sales and new leases down and many expecting a return to the heated conditions of before 2008 to be some time off.
Some estimates put the fall in rental prices for high-end residential units at around 10% during 2009, far better than some of its near neighbours, where returns from rental properties have fallen by as much as 50 percent.
Sales prices for some developments in the Gulf such as those in Dubai have plunged at a similar rate.
Bahrain has not seen the extensive corrections in general asset prices that occurred in Dubai or elsewhere around the globe but Tim Glover, the Bahrain CEO of real estate specialist Cluttons, said a chance of instability remained.
“There is still the potential for an imbalance between supply and demand across many of the real estate sectors and supply in particular will have to be carefully regulated in order to allow for some growth in market transactions,” he said in a report issued February 22.
Significantly for the Bahrain property market, the Cluttons report foresaw growth in the industrial segment, thanks to continued state support and new developments coming on-line.
If correct, this trend could result in spillover to the residential and possibly office or retail segments, driven by the need to house employees and provide workspaces and sales sites.
Abdul Hakim Khalil Al Mutawa, chairman of Sakana Holistic Housing Solutions, a Bahrain-based Islamic finance firm specialising in the mortgage market, said that despite posting an improved profit for 2009 over the previous year, recovery was still fragile. Cautiously optimistic for 2010 he was confident of a return to stronger growth further down the line.
“With a growing young Bahraini population and increasing per capita income, the long-term outlook for residential property and mortgage is positive,” said Al Mutawa.
The state has committed to delivering 10,000 or more residential units this year, and up to 16,000 annually after that, so there should be growth in both the construction industry and the real estate sector, though many of the new developments will be at the lower end of the market rather than the more luxury segment. This is an opportunity for those focusing on affordable housing.
So, though the real estate sector is throwing off the inactivity of 2009, there are a number of factors that will impede higher rates of growth for some time, according to real estate services firm CB Richard Ellis, including scarcity of land and falling demand for already developed office space.
A report issued by the company on February 9 said that much of the Bahrain’s prime land was locked up by buyers in 2007 and 2008, when speculators were paying top prices to acquire properties for development.
With little land still on the market, and speculators unwilling to sell off those blocks they have while the market is down, many projects will be held back because economic circumstances have altered so significantly since the original land purchases were made, said the report.
While some new office space projects opening were attracting interest and were having little difficulty in finding clients, office rents and occupancy rates in areas with difficult access and a shortage of parking have dropped significantly, the report said.
“As market conditions improve and business confidence returns, we believe that prestige space in quality developments that enjoy relatively straightforward access and good parking continue to have a very good chance of attracting tenants,” the CB Richard Ellis study stated.
It will take time for Bahrain’s real estate sector to start rising again across all segments, though the economy’s expected return to solid growth this year, combined with state pump-priming, should help whet the market’s appetite.
When that time comes, the extensive land banks held by some developers could again become a handy asset, rather than just red ink.
Trends in the Middle East are short lived.. Once there was commercial boom then came in Property boom and precedent to these was the IT boom and not to mention, the stock markets. The saturation bubble held in there for sometime before recoiling back where it should have been leaving most back between more richer and more poorer. Trends are just periodic and property has to set a precedent of a solid starter 'once' again, which seems unlikely for now. Once hit is always hit.
The stagnation in the property sector is cyclical, and Bahrain has weathered it better than most. This is largely because they focus on their own people, and don't look abroad for the investors. The Bahrainis also go to work, drive taxis, serve in restaurants, stamp your passport. There is a lesson here, because self-sustaining economies rely on indigenous folk to toil and spend.