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Bahrain ... renewed economic stability under threat.

Weak oil likely to hit Bahrain residential rents

MANAMA, May 13, 2015

With weak oil prices eroding Bahrain’s economy, the residential market remains at high risk of losing its momentum of growth, with declines likely towards the end of the year as demand starts to wane, a report said.

Renewed economic stability in Bahrain, which has stabilised the kingdom’s property market, has been tempered slightly by the weakness of oil prices, automatically affecting the level of office take up, job creation levels and therefore residential demand, added the Spring 2015 Bahrain Property Market Outlook report from Cluttons, a leading international real estate consultancy.

Cluttons indicates that rents and values across the Kingdom’s residential market are yet to see a notable impact, but low oil prices are expected to further undermine economic growth which slowed to 4 per cent last year, from 4.9 per cent in 2013.

“The strength of the turnaround in 2013 was largely attributed to a resumption in the disrupted oil exports. In the current global climate, the serious challenge of oil prices remaining well below the government’s forecast is seen to be taking centre stage,” said Harry Goodson-Wickes, head of Cluttons Bahrain and Saudi Arabia.

Cluttons’ report also highlights that, unlike the residential lettings market, outlook for the sales market is stable as a result of the government’s recent series of policy announcements designed to bolster residential investor sentiment over the short to medium term.

“Headlining these regulatory changes has been the announcement of the resumption of several landmark schemes that have remained dormant, tantalisingly close to completion since the onset of the financial crisis,” Goodson-Wickes added.

“While it is unclear how the stalled residential projects have been selected, by tackling projects such as the iconic Villamar development in Bahrain Financial Harbour through the engagement of Gulf Finance House and Saudi based Al Rajhi Bank, we can see that there is strong underlying commitment by the authorities to those who are heavily invested in the residential market.”

According to the report, away from the residential market, the office market has remained mute, with rents in Al Seef continuing to fluctuate between BD 5-5.5 ($13.1-14.5) per sq m with little movement recorded elsewhere. Diplomatic Area and Financial Harbour area that registered rent declines of close to 6 per cent in 2014, have stabilised and no further decrease has been recorded so far in 2015.

International research and business development manager at Cluttons, Faisal Durrani said: “Our short term outlook is for office rents to continue at the current rate, with downward corrections likely to materialise later in the year and into 2016 if oil prices remain in the USD 50 to 60 per barrel bracket.”

“Furthermore, should the $10 billion GCC Support Fund agreed in 2011 for Bahrain be renegotiated, as the region’s governments feel the strain of falling hydrocarbon receipts, the likelihood of a slowdown in infrastructure project spending will be a very real threat.

“The implications for demand in the commercial and residential markets would be tremendous, but this is a risk we are monitoring closely as it does not currently sit in our central forecast scenario,” he added.

Elsewhere in the commercial landscape, the retail market continues to remain resilient and is still expanding, with Saudi tourists in particular visiting Bahrain in large numbers each weekend to avail of the kingdom’s growing retail offering.

The report shows that Dragon City on Diyar Al Muharraq has pre let 60 per cent of the 750 retail units, with completion expected later this summer. International retailers are also seen mobilising to position themselves at the forefront of the buoyancy in the market, with Carlo’s Bakery from New Jersey being amongst the first in a new wave of brands making their foray into the Gulf, opening at The Courtyard shortly.

“The silver lining in the otherwise economically debilitating tale of oil price weakness is a stronger US Dollar, to which the Bahraini Dinar maintains a fixed peg,” Durrani said.

“A stronger dollar will translate into cheaper import costs, which will cascade down to consumers in the form of increased disposable income levels, which suggests a bright short-medium term outlook for the retail market as households are tempted into spending more. This will in turn drive both the take up and performance of the retail sector,” he concluded. – TradeArabia News Service




Tags: Bahrain | Cluttons | Oil Prices | residential rents |

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