Property sales in Bahrain have virtually dried up and the next two years will see significant challenges for the real estate sector, according to a new report.
The prohibitive cost of mortgages has impacted on the number of real estate sales in 2009 but low transaction activity and ‘inappropriate’ products in the development pipeline could cause real issues in the Gulf state, says the report from international consultants CB Richard Ellis.
‘The rampant land speculation that took hold in 2007 and 2008 has resulted in large areas of Bahrain being effectively locked from development, at least in the short term,’ the report warns.
Although few residential projects have been formally cancelled, many have been put on hold or delayed until new construction contracts have been negotiated, it adds.
But rental rates for residential properties have held up reasonably well across the board as had commercial office rates in popular areas. And lease rates for quality apartments in prime areas such as Seef District and Juffair have only dropped 10% since the last quarter of 2008 compared to more than 50% in some parts of Dubai.
The report concludes that the Bahrain economy had remained in generally good shape during 2009, recording a small contraction compared to its Gulf neighbors and is expected to bounce back fairly strongly in 2010 on the back of government infrastructure expenditure across a broad range of sectors.
It has also been a challenging year for the real estate markets in the northern emirates, the consultants say, with property prices falling by more than half from their peak in 2008 due to ‘severely pressing economic conditions,’ the report also says.
Ajman and Ras Al Khaimah have seen both seen major decreases in prices with values plummeting over 50% for some off-plan properties. The rental market has also declined and average rates have dropped by around 29% since the first half of 2008.
Prices of one bedroom apartments were the worst hit, with declines of around 34% over the same period. The report says that landlords are now offering incentives, such as free rent period and free parking, to try and attract tenants.
‘The recent migration of residents back to Dubai is having a significant negative impact on the residential market of the northern emirates, dragging lease rates down and pushing vacancy rates up,’ the report points out.
CBRE forecast this trend is likely to continue during the first half of 2010 with weak demand and increasing supply continuing to be problems in the northern emirates.
