In terms of residential market, the report pointed out, much like its GCC counterparts Bahrain also experienced remarkable growth in its residential construction market in the last decade. However, the recession led to a deceleration in the construction market, which led to a decline in property prices, albeit at a slower pace as compared to its regional peers.
“The recent political unrest that engulfed Bahrain also had an adverse effect on the residential construction and real estate market which led to a weakness in both freehold as well as the leasehold segment.”
According to Alpen Capital, the Bahraini residential market will remain soft for a while mainly due to oversupply and a cautious approach by investors post the recent political unrest.
However, the government’s aggressive plan to provide affordable homes is expected to come as a respite for the struggling residential construction market. The government plans to develop three new cities in East Hidd, East Sitra and Northern Town, which is expected to provide approximately 23,000 units by the end of 2016.
Alpen Capital expects the residential market of Bahrain to see substantial undersupply in the affordable homes segment as developers continue to focus on the premium segment of the market. The future delivery pipeline of apartments in Bahrain will lead to further oversupply in the premium segment of residential properties market. This is expected to put more pressure on prices as well as rentals of residential units across Bahrain. However, any further positive step by the government to build the proposed satellite cities in Bahrain to address the issue of affordable homes is likely to act as a catalyst for the struggling residential construction markets across Bahrain.
The Bahraini commercial office construction market is facing oversupply post the global recession. The commercial office space in Bahrain is currently facing an oversupply leading to a significant fall in the vacancy and rental rates of office properties across Bahrain.
Commercial rental yields in Bahrain fluctuated throughout 2010. Rental yields increased to 15-20% in major cities of Bahrain in the first half of 2010 and later declined to around 10% in the second half of 2010. Further, commercial office rental yields across Bahrain stood at around 11% in June 2011.
“In their quest to move away from predominantly oil-based economies, the GCC nations initiated several big projects, with construction being one of their top-most priorities in the last decade”, Sameena Ahmad, Managing Director at Alpen Capital, said.
“The GCC construction sector saw a period of spectacular boom and was subsequently adversely affected by the global economic meltdown. Although the sector is showing signs of recovery, investors are still taking a cautious approach.”
“The GCC countries have sound economic fundamentals and healthy growth forecasts. The governments of these countries are increasingly looking at developing their non-oil sectors like construction and real estate. With oil prices expected to be stable, any further increases in government spending will support investment and consumer spending, thereby having a positive effect on GDP growth, which will bode well for the overall economy in general and construction sector in particular”, Sanjay Bhatia, Managing Director at Alpen Capital, added.