Flip through the latest issue of Gulf Weekly.
A prolonged stock slump and rising rents are making the real estate a healthy investment alternative in Bahrain and elsewhere in the Gulf region.
Regional real estate prices are likely to peak this year as more developments come on stream. There may even be a slight downward correction but a sustainable growth of around 12 per cent year on year is much healthier than any continual crest and trough scenario.
Realtors predict Bahrain’s residential property market to grow by about 40 per cent in the next two years. However, that too wouldn’t be too much to brag about, compared to what has been achieved in Dubai, where the market has risen by as much as 150 per cent.
Although 22 major projects are under way in the kingdom, the real estate sector with around $32 billion investment is still in its infancy and is full of opportunities for investors.
It is here that Bahrain’s connection with Saudi Arabia’s huge market through the King Fahad Causeway would come handy.
Since last year, thousands of Saudi investors have been abandoning crashing regional stock markets, which lost SR3 trillion in just a year.
For years, massive returns in booming Gulf bourses have taken the shine out of investment in realty, but a painful meltdown in stock prices has put the sector back under the limelight. At the Bahraini stock market, 2006 was a rollercoaster experience for investors.
Cashing in on the chaos, banks jacked up credit to Bahrain’s private sector, hitting a record high in June with loans to construction and real estate growing 50 per cent from a year earlier. Bank claims on the private sector reached a record BD2.99 billion ($7.93 billion) in August, up 25 per cent from a year earlier.
Bank loans are growing as Bahrain’s economy, the smallest in the Gulf Arab region, grew 6.9 per cent last year, according to the International Monetary Fund.
Meanwhile, the Saudi bourse, the largest in the Arab world, had lost $400 billion or over half its value in a sharp correction since late February 2006 after years of rapid gains.
Saudis would now rather book 10-12 per cent return from real estate than dream of 70 per cent from the stock market, which may end in the red.
Saudi real estate, with about SR1.5 trillion worth of investment accounting for around half the total investment in the sector in the whole Gulf region, would be their first choice.
Nearby Bahrain could be the next stop.
The kingdom’s freehold laws and the developments in the property sector have signalled yet more confidence in the real estate market with prices expected to go up a few per cent in the short-term as new buyers enter the freehold market.
A lot of businesses are looking at Bahrain because of lower costs (than elsewhere in the region) and because of signature projects like the Financial Harbour and the World Trade Centre.
Most buyers have been retail investors, either Arabs looking to invest growing wealth from an oil boom or Westerners drawn to Bahrain’s affordable lifestyle.
Bahrain’s Commerce and Industry Minister Dr Hassan Fakhro told a business forum in Chicago recently: “I believe we can provide you with the best home in the Middle East, where you will be welcomed as equals, enjoy the benefits and protection of the Bahrain legal and commercial environment, and have easy access to a large market.”
Assurances apart, developers must put fail-safe guarantees in place.
They should fast-track best practice implementation and internationally recognised standards, which will in turn, encourage investors from outside the region.
Bahrain is the ideal gateway to the Mena region, which has a population of some 400 million and a GDP in excess of $3 trillion.
Behind the desk with K S Sreekumar
