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Mon 21 May 2007 12:23 PM

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Dilmun rising

Why the Bahrain Business Bay will confirm Bahrain as the most sought-after property market.

Those who have been to Bahrain on business trips may have noticed this name from the airport's Business Lounge: "Dilmun!" But few might know that this links with a Bronze Age civilization called Dilmun that existed in Bahrain over 5000 years ago. The name means "the place where the sun rises" and describes its prosperity from trade links between Mesopotamia and the Indus Valley.

Today, this small kingdom, often overlooked with contrast of Dubai's booming economy and popular real estate market, is again emerging in the international spotlight. With a number of mega projects in the pipeline, Bahrain is about to be reborn into a hyper modern and luxurious property market in only next few years.

Booming economy as backbone

The Kingdom of Bahrain, a borderless island country located in the Persian Gulf is the smallest Arab nation. Nevertheless, is has an economy that is considered to be fastest growing in the region as well as the freest. Since HH King Hamad Bin Isa Al Khalifa came to power in 2002, Bahrain has been making astonishing progress both in terms of economy and politics. With an effort to diversify its economy from oil, Bahrain has established a strong financial centre, attracting nearly 380 financial institutions, making Dubai desperate to catch up after its launch of DIFC.

With an effort to diversify its economy from oil, Bahrain has established a strong financial centre, attracting nearly 380 financial institutions.

In the arena of International politics, the Kingdom has secured a position by establishing strong alliances with the likes of the US and UK. The Kingdom has signed a free trade agreement (FTA) with the United States. Internally, Bahrain has been promoting democracy by holding open elections since 2006; even the first female representative was elected to join the parliament before any other GCC country.

The kingdom has been focusing on five sectors, namely financial services, information technology, healthcare & education, tourism and telecommunications. Together with its open economy policy, business transparency, attractive legislation system and lucrative location as a neighbour to Saudi Arabia, the kingdom has been successful in attracting multinational companies to establish bases and headquarters to increase employment and expatriates.

In 2005 Bahrain recorded the highest nominal Gross Domestic Product (GDP) growth in its history of 19.7%. This was driven by an improved performance in two sectors; finance and most importantly, the real estate/development/construction sector. Like Dubai, Bahrain's real estate boom is driven by the nations increasing wealth generated by sector-focused economic policy and population growth. This is mainly driven by expatriate inflow. Unlike Dubai, Bahrain has enjoyed the benefit of its big neighbour Saudi Arabia.

The largest economy in the Middle East, Saudi Arabia is a crucial market for many multinational companies although, due to its conservative nature, many Westerners working in Saudi tend to choose Bahrain as their home. For many, commuting from a more liberalised and tolerant Bahrain and using the 25km causeway to Saudi Arabia has made better sense. The King Fahd causeway has been a driving force in adding demands to the Bahrain real estate market.

Variety of investors

These combined have resulted in a thriving rental real estate sector forming a small but established real estate market. Besides the expatriate community, Bahrain has been a lucrative market for its neighbours. Traditionally, Saudi Arabian investors bought properties when their kids went to Bahrain for education. Qatari investors joined the move for its geographical closeness. The two nations are currently in the process of constructing what will be the largest global fixed link relationship, the "Qatar-Bahrain Friendship Bridge" will only encourage many more Qataris to invest in Bahrain.

However, what Bahrain is now observing is beyond the original scope of property market. Presently, the market is going through a dynamic phase, involving investors globally - way beyond GCC arena.

Proactive policies

In the last five years, the total value of traded land permits shot up at on average 27.4%. In 2005, commercial licenses to the construction sector had increased by 401.4%. This boom is actually backed by the government's bold foresight action to allow foreign freehold ownership of land led by legislative and constitutional changes.

Qatar and Bahrain are currently in the process of constructing what will be the largest global fixed link relationship, the “Qatar-Bahrain Friendship Bridge”.

Of course, low interest rate and higher liquidity in the region due to higher oil prices have helped the market to become this hectic, but Bahrain's flexibility in enacting legal changes to accommodate market needs. In addition, the government allows for a permanent resident permit in Bahrain for property owners as long as they hold ownership. The easing of property ownership was a definite boost to the market - something that the administration has proactively encouraged.

In 2005, the real estate and construction sector contribution to GDP has been increasing in terms of absolute value. The contribution to GDP reached US$1.55bn in 2005 as compared to US$1.4bn in 2004, reporting an increase of 10.1%.

Iconic projects in the pipeline

"We believe that the property market in Bahrain is set to grow exponentially in view of the number of high profile projects coupled with increasing foreign investment, excess liquidity and government's liberal policies towards non-Bahrainis to own property in the country," comments the economic research team of Global Investment House, KSCC, a Kuwaiti financial institution who has been closely monitoring Bahraini real estate market over the past years. This optimistic view may easily be confirmed by reviewing major projects coming up. Indeed, most of them are truly ground-breaking and will change Bahrain's history forever.

Bahrain Bay project

One of the largest projects under construction is the Bahrain Bay Development, a joint venture between Arcapita Bank BSC (Arcapita) and a Bahrain-based investment group. The US$2.5bn development off the North East coast of Manama was launched as a signature project to attract strategic investors and capital to Bahrain to support the financial, tourism and national economy.

Creating an ultra modern ‘Bayside' district of commercial, residential and retail buildings along the shore, Bahrain Bay is expected to host around 25,000 people.

As a design team, Skidmore, Owings & Merrill (a Chicago-based leading architecture and urban design firm who also designed iconic Burj Dubai) has been retained. The project is unique concept of building an island connected by two bridges forming an inner harbour was chosen to realise an "ultra-modern urban environment". In the complex, Bahrain's first Four Seasons hotel is planned to open and a 285 metre high tower will be strategically located on a centrally-positioned island.

Three distinct construction phases are planned to be executed consecutively, the first one has already commenced in January 2006. Phase one involves a 430,000 sq m land reclamation and infrastructure development expected for completion in August 2007. The second phase will see the construction two anchor developments, the Four Seasons hotel and a new global headquarters building for Arcapita, scheduled to complete in early 2009. The last phase will involve developments of residential, retail and commercial sub-projects around the two anchor developments. Upon completion, currently expected in 2012, the total built area will be over 1.1 million sq m.

The rationale behind the project

"Bahrain Bay is the culmination of intense strategic planning and a unique vision, which has combined to create a new standard for real estate development in Bahrain. The project's ability to draw commitment from world-class partners is testament to the meticulous masterplanning and the resulting investment opportunity offered by Bahrain Bay," said Mr. Atif A. Abdulmalik, Chairman of Bahrain Bay Development and CEO of Arcapita Bank. As he states, the project has been very successful in drawing international investment to the kingdom. Starting from US$630m investment by CapitaLand, one of Asia's largest real estate companies, to develop their premium "Raffles City" concept within Bahrain Bay (which will house Four Seasons hotel) the project has also attracted European energy services giant Dalkia, which has invested US$150m into a joint venture whose first investment will be into building a world-class waste and energy services facility for the bay.

Most recently in the end of March, Bahrain Bay Development signed a letter of intent with an Indian joint venture consortium to acquire land and develop a US$150m prestige project within the Bahrain Bay masterplan. The joint venture consortium consists of Ajmera Group, a US$450m conglomerate based in Mumbai and Mayfair Housing, a major Indian urban residential property developer. They are committed to Bahrain Bay marking their first development outside their home market. They are also intending to develop one of the tallest residential buildings within the project, positioned next to the ocean front on the main canal of the masterplan.

Bahrain Bay is the culmination of intense strategic planning and a unique vision, combined to create a new standard for real estate development.

To date, reclamation for the Bahrain Bay Project is 85% complete. The Arcapita headquarters is expected for completion by early 2009, the Four Seasons hotel by 2010 and Raffles City Bahrain is expected to open in 2010, together with the Ajmera and Mayfair Housing project. This project will completely renew the view of Bahrain's coastline in 2012 upon completion.

Infinity Tower

While the Bayside is becoming hectic with all the construction works, another landmark project was announced by DTZ Bahrain earlier this year. The project, the Infinity Tower claims to be "one-of- a-kind project to serve as a landmark in terms of design and quality " to redefine the standards for luxury high-rise living in the kingdom.

Infinity Tower has been conceptualised and designed by the global architect and engineering consultant WS Atkins, who have been responsible for the design of Dubai's Burj Al Arab. They are also the designer of another iconic structure in Bahrain, the sail-shaped Bahrain World Trade Centre Tower almost ready for handover.

Infinity Tower, expected to be developed at an estimated cost of approximately US$150m will have 50 storey structure featuring 350 luxury apartments. These will range from well-appointed one bed-room loft apartments to double storey four bed-room duplex apartments and penthouses facing sea and city views, equipped with ‘Skygardens‘ incorporating ‘infinity edge' swimming pools. The price has not yet been revealed but they are targeting top-end investors.

"There is no other residential project in the Kingdom, at present, offering the unique features setting Infinity Tower apart. These include the exceptional use of space and added design features and amenities, which have yet to be incorporated into urban high-rise residences in the GCC." Commented Mr Robin Williamson, managing director of DTZ Bahrain on the unveiling of the project. It is their intention to allow residents to experience the grandeur of villa life with the luxury of unobstructed sea views enjoyed as heights is new to the market.

The development will be located on a 3945 sq m ‘island' plot with a built-up area of 85,000 sq m. The ‘island' will be established from reclaimed land in a prime location within the heart of the Seef District. Infinity Tower will be next to the Seef Mall as well as the City Centre Mall, currently under construction by MAF, which also developed Mall of the Emirates in Dubai. In addition to the shopping convenience, Infinity Tower will offer a mix of retail space including a multitude of shops, restaurants and cafes located on the ground floor.

Why so many bay/island projects?

It is noticed that in Bahrain, many new developments are planned along the coast-line or on artificially created islands. One of the reasons for this is actually associated with kingdom's unique land ownership structure. As much as 90% of land is owned by private individuals/investors with only 10% owned by the government. Owners of the coast-line are mainly private individuals creating obstacles for securing large plots of land for mega projects. "It actually makes financial sense to add value to your development by reclaiming land that facilitates beach front property, than to buy land on the corniche in central Manama, where land prices are extremely high" Steve Coates, Director of Davis Langdon Bahrain, a construction cost consultancy explains this phenomena. One should be aware that recent land prices have appreciated almost three to four times in almost all areas within a year!

The Three Towers project

When a high-rise luxury residential tower project is set to go, the largest freehold luxury apartment project in the kingdom is gaining popularity. Abraj Al Lulu, located in the centre of Manama - just across the highway from the Bahrain Financial Harbour and a 20 minute drive from the Saudi causeway. This covers an area of 200,000 sq ft and comprises of three multi-storey residential towers offering superior amenities fit for a luxurious life. The US$252m project is owned by a group of leading Bahraini, Saudi and UAE investors, in coordination with Bahrain-based Pearls Real Estate Development Company.

The Three Towers project, incorporates over 860 one, two, three and four-bedroom apartments, 12 villas in the Sky levels and a full complement of sports and recreational facilities. Outdoor facilities range from exclusive tennis and basketball courts to an open air pool, terraces, landscaped play areas, rock gardens and waterfalls as well as health and fitness centres. Most luxurious of all, 12 villas, four each at the very top of the three towering edifices are designed for exclusive privacy and providing an awe-inspiring view of Bahrain from the skies.

The completion is expected in the first quarter of 2008 but Abraj Al Lulu has so far sold over 85% of the apartments to investors. The sale started 18 months ago but this speed was almost unheard of in Bahrain before. Investors have come from over 24 different countries although the majority from Saudi and Bahrain.

"Bahrain real estate market is very different from Dubai. Every project is unique and nothing is repetitive. Abraj al Lulu, for example features a quiet tranquil life style albeit it's located right in the centre. It is completely residential and no unnecessarily large commercial areas are planned to be built in the development. After all, there are as many as six shopping malls next door," comments Iman al-Mannai, the Sales Manager for Abraj al Lulu who has just moved away from the "hectic" Dubai real estate market to corral this new Bahrain market. The project is 37% complete and ahead of the schedule as the project managers who are enthusiastic to complete this landmark project in record time.

Financing options

Today, most mega projects like Abraj Al Lulu provide bank tied-up financial facilities to buyers. However, until quite recently, this was quite rare. A local developer admits that "Bahrain just started the freehold system very recently. It is almost like in Dubai five years ago, everything is still new and still under construction." In Abraj Al Lulu's case, they offer three different options of finance; commercial financing, low-rate financing and Islamic finance. Ironically and despite the fact that Bahrain is one of the major financial hubs in the Middle East, housing mortgage market is yet to be established. This has been one of the obstacles for some living in Bahrain to access this healthy Bahraini real estate market.

Only about five to six years ago, Bank of Bahrain and Kuwait (BBK) and a few other banks, commenced to provide housing mortgages. A significant improvement was seen this year, in the mortgage market and many more banks are now offering a variety of products. The good news for foreign investors is that a mortgage is now open for non-Bahraini residents as well. For example, BBK now has a whole series of new mortgage and equity finance products even for low to middle income Bahraini and non-Bahraini residents. This allows up to 90% mortgages for residential property in Bahrain with a loan period of up to 25 years. Although the average interest rate tends to be as high as 9% at a reducing balance, open mortgage market in Bahrain has clearly opened a new chapter for Bahraini real estate market.

Cost of living going up

Despite the glory of all the projects launches, the booming market has clearly a downside effect to some people as well. Not a new story in Dubai, but certainly the same epidemic of ‘rising accommodation cost‘ is about to hit Bahrain.

Not as fanatic as land price increase, but according to a local real estate agent, sale price of residential property has already gone up by 22% in the last half a year. As for the rent, around 37% increase is observed over a year.

Bahrain real estate market is very different from Dubai. Every project is unique and nothing is repetitive.

A mounting tension is rising among local people who cannot continue to afford the rising price, leading to an argument that the development is moving too fast. Along with the high rate of unemployment and low salaries among the young Bahrainis, this is now creating mixed sentiments between multinationals moving into the kingdom verses encouraging high-earning expatriates to participate in the opportunities in Bahrain.

Inflation risk

There is also another related concern to "inflation risk". Further boosting of market could easily encourage inflation spiral to move upwards. Note also that Bahrain's economy has been evolving fundamentally on banking/financial industry's solid foundations. Should banking overextend into the booming real estate market by providing loans, it would create over interdependency. This could lead the entire economy to be based on shaky ground. Bahrain's next dilemma will be how to balance the real estate market growth and security of the banking industry.

Shortage of construction supply and rising construction cost

Like other Gulf countries with a dynamic booming construction industry, Bahrain is struggling to cope with a drastic shortage of construction materials. In Bahrain, shortage of sand has actually been pushing up construction costs.

The kingdom has been importing sand mainly from Saudi Arabia; however imports from Saudi were halted in 2003 creating a massive shortage and forcing the construction industry to rely on the expensive process of treating sand from the sea. This situation has led the Bahraini Saudi Business Council to establish the Bahrain-Saudi Sand Company aimed to import sand to Bahrain.

The proposed US$13.3m Bahrain Saudi Sand Company is expected to be listed on the Bahrain Stock Exchange and help reduce drastically the construction costs in Bahrain.

However as the demand for cement has increased by 50% during the last two years in Bahrain and as many more mega-scale projects to come to fruition, the fight to procure materials and reduce costs will most likely to remain as thorny issues.

Bahrain tomorrow…

Looking at the kingdom's lifestyle and cultural scene, drastic changes are about to take place led by new developments. In the next few years, the city is expected to be more hip and modern by the opening of new shopping malls, restaurants, retail and entertainment districts.

Moda Mall, which is based in The Bahrain World Trade Centre, will be featuring many high-end retailers such as Gucci, Hermes, Armani, Valentino, Cartier in a 16,500 sqm unit which should be opened later this year. The mall is built around a unique concept combining elements of wind, water, motion and veil, making itself an entertaining structure. Other mega shopping malls when completed should enhance a shopping experience in Bahrain. The quality of these malls and their experiences are likely not only to meet global shopping experiences but also should inspire ‘shopaholic tourists' to the island kingdom.

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