Falling Rents, Improved Facilities Create Boon for Residential Tenants in Bahrain
According to international real estate consultancy Cluttons, weakening economic conditions, tapering off in demand for oil and gas, and an increase in real estate supply has led to increased pressure on the Bahrain real estate industry. The result is a market defined by increased incentives, adjustments and service quality from landlords and developers as they fight to remain competitive in the market.
The Cluttons Bahrain Spring 2017 Property Market Outlook
highlights that a positive outcome of these conditions is a 'Golden Age' for occupiers in Bahrain, with historically-low prices, a strong selection of exceptionally well-managed facilities and a developer approach that is inherently focused on market-suitable properties.
Cluttons report that the relative stability of residential rents across the Kingdom's key expat dominated submarkets appears to have ended following a largely flat 2016. 2017 has marked a change in conditions, with rents retreating across the board during the three months to the end of March. In real terms, this equates to a monthly fall of roughly BD 80. Apartments (-8.3%) experienced a sharper rate of rent corrections than villas (-6.9%). However, both segments of the residential rental market experienced the fastest rate of decline since 2009 during Q1.
Faisal Durrani, Head of Research for Cluttons commented, "Weaker economic conditions alone are not to blame for the correction now underway in the rental market in Bahrain. There has been a surge in the number of new residential developments being sold in the market, most of which are being acquired by Bahraini, or other Gulf investors. A significant amount of this stock is filtering through to the rental market which is pushing supply ahead of demand- albeit with a significant upside for renters and occupiers."
In the sales market, the Cluttons Bahrain Outlook notes that the extent of this burgeoning supply surge is reflected by the fact that over 4,100 units are slated for completion in the upper end of the market within the next two years. By 2020, over 7,100 units are expected to be added to the existing residential supply. The knock-on impact on sales prices from the sudden boost to supply appears yet to materialize, with residential values holding steady and remaining unchanged for six consecutive quarters. At the end of Q1 2017, average residential capital values stood at BD 948 psm, with apartments on Reef Island (BD 1,233 psm) and villas on Amwaj Islands (BD 1,275 psm) remaining the most expensive in the Kingdom.
Harry Goodson-Wickes, Head of Cluttons Bahrain & Saudi Arabia said, "A lack of easy access to debt financing may deter purchasing appetite. Paradoxically, high volumes of unsold stock will also contribute to capital value volatility. For now, the difficulty around controlling supply lies in the hands of developers who are promoting favorable payment plans. Those developers who continue to succeed in these difficult market conditions have focused on stock that meets specific market needs, and have a strong track-record of development in the Kingdom and across the Gulf."
The Cluttons Bahrain Spring 2017 Property Market Outlook forecasts that a correction in residential values is highly likely, particularly if the sales supply pipeline continues to expand unchecked at current rates.
Goodson-Wickes concludes, "For the rental market, we forecast rents to continue dipping back, with average rental rates likely to end the year 10% to 12% down on 2016 as the economic pressures both within Bahrain and around the region remain in place. We are however somewhat optimistic that 2018 will see a return to stability, should government infrastructure spending drive up overall economic activity levels in the way we expect."