Bahrain property market 'faces challenges'
Manama, January 5, 2012
Bahrain’s real estate sector faces the twin challenges of oversupply and weak demand, even as the kingdom, despite the troubled political landscape, is emerging from 2011 with an air of cautious optimism, says a new report.
Meanwhile, it is important for the authorities to help resolve issues related some problem projects in the kingdom and reassure investors, said the MarketView by CBRE Bahrain Research Team said.
Talk in the residential sector remains dominated by the ‘affordable housing’ market although there remains a lack of clarity by many developers as to what this actually means, it said.
“It would seem that many of those thinking of entering this arena believe that it will be enough to build units as cheaply as they can and hope the market takes care of the rest. This may lead to some poor outcomes as land prices, which remain high due to rampant land speculation in recent years, have skewed total development costs to a point where it is almost impossible to meet the pricing requirements of the ‘affordable’ housing market,” the report said.
Even when developers build housing units at prices that meet market expectations in the form of apartments, sales profiles remain weak due to a general resistance to apartment living by Bahraini nationals, which is itself borne out of a lack of secondary trading in the market, compounded by the lack of equity necessary to obtain finance.
Although little discussed, the Bahrain real estate sector continues to wrestle with the reality of part-sold, part-built residential projects such as Marina West, Villamar, Amwaj Gateway and masterplanned areas such as Dilmunia, Nurana, Al Areen and Marsa Al Seef which have failed to regain traction since momentum was lost at the outset of the global financial crisis, the report said.
“The sheer liquidity that drove many of these projects is now noticeably absent from the Bahrain market, and a wide variety of both investors and developers have been left high and dry. There has been little reaction from the Government to the pleas of significantly out of pocket buyers and the situation remains simply unresolved,” it said.
“A failure to resolve these problem projects creates a poor precedent for those considering an investment in Bahrain. Without any apparent protection from legislation or the government itself, potential investors will likely be drawn to those locations in the Gulf that are either more stable, transparent or more willing to protect the rights of buyers and investors,” the report added.
The Class A office market continues to be dominated by significant oversupply and weak demand. Despite this, rental rates appear to have bottomed out as landlords have now reached rental rates below which they are unwilling and unlikely to go. Incentives remain relatively rare even in largely unoccupied properties in good locations, the report said.
“It is perhaps surprising how little movement there has been in a market where we might have expected a large degree of rationalisation, consolidation, renegotiation and upgrading. Despite the opportunities for all of these, the market has remained largely static as it has suffered both new supply and demand contraction simultaneously,” it said.
The less-preferred prime locations such as Diplomatic Area, which suffers from chronic traffic access, circulation and parking problems has suffered the most, with new supply lying idle and existing tenants seeking to relocate to new districts such as Seef on expiry of their current contracts, said the report.
“However, the costs of moving in terms of fit-outs, IT, legal and even stationery are proving barriers to movement for most businesses which have become extremely cost-sensitive in an albeit temporarily, uncertain political and economic climate.
The retail mall sector in Bahrain has historically been dominated by the collection of ‘regional’ malls in the Seef and Sanabis areas which were the home for most of the Kingdom’s hypermarkets and cinemas, and benefited from Saudi weekend visitors.
However, the malls in this area have largely been ‘cannibalised’ by Bahrain City Centre which was not only able to attract many of the key tenants from the other malls, but at almost double the rental rate. The remaining malls have been faced with increasing vacancy rates and lower profile tenants and in some cases rates have fallen by almost 75 per cent as mall management have sought to maintain both occupancy and footfall levels, said the report.
However, the growing trend across Bahrain has more recently been in the field of ‘neighbourhood’ centres anchored by hypermarkets such as Lulu. As these centres have increasingly opened throughout the Kingdom, visitation levels to the major malls has fallen even further, and it remains to be seen how events in this sector will unfold over the next two or three years, it said. – TradeArabia News Service