Bahrain property market at high risk of losing momentum: Report

 

Bahrain’s property market could be affected by weak oil prices Bahrain’s property market could be affected by weak oil prices

Weak oil prices will temper the performance of Bahrain’s property market, according to Cluttons’ Spring 2015 Bahrain Property Market Outlook report.

The report indicates that the level of office take-up, job creation and, therefore, residential demand, have been tempered by the dip in oil prices. This dip is expected to further undermine economic growth, which slowed to 4 percent last year from 4.9 percent in 2013.

“The serious challenge of oil prices remaining well below the government’s forecast is seen to be taking centre stage. With that in mind, the residential market remains at high risk of losing its momentum of growth and we expect rents to remain stable, with declines likely as we approach the end of the year and demand starts to weaken,” Harry Goodson Wickes, Head of Cluttons Bahrain and Saudi Arabia, said.

But unlike the residential lettings market, the outlook for the sales market is stable because of the government’s recent series of policy announcements, which are designed to bolster residential investor sentiment over the short to medium term, the report says.

According to CBRE, another real estate consultancy, the demand for residential property in Bahrain continues to be strong with newly completed residential buildings across the capital and particularly in popular expatriate areas such as Juffair and Seef, achieving high occupancy within relatively short time frames.

The office market has meanwhile remained muted, with rents in certain areas that reported declines of close to 6 percent in 2014 stabilizing, so far, in 2015.

“Our short term outlook is for office rents to continue at the current rate, with downward corrections likely to materialize later in the year and into 2016 if oil prices remain in the USD50 to USD60 per barrel bracket. Furthermore, should the USD10 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,” said Faisal Durrani, the international research and business development manager at Cluttons.

Currently, however, the commercial office market has become fragmented, “with landlords who have been able to adapt to current market demands performing better than those who have continued with traditional approaches to leasing space”, CBRE’s report suggests.

The strong dollar, to which the Bahraini Dinar maintains a fixed peg, does however provide a silver lining for Bahrain’s economy, the report says.

“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 to 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,” Durrani concluded.

 

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