Why Bipex
The Scenario in Bahrain
Bahrain’s growth also slowed considerably in 2009, although GDP estimates for the year vary from a contraction of 0.1% (Business Monitor International) to an expansion of 3% (Bahrain Economic Development Board).
• Fiscal year 2009 saw the country projecting a budgetary deficit of US1.7 billion, after five years of surpluses, as a result of lower oil prices and counter cyclical expansionary fiscal policies that saw increased investments in infrastructure and higher social sector spending.
• Monetary policy settings also became more accommodating as the global recession deepened, with interest rates cut, a new dollar swap facility introduced and the deposit guarantee scheme raised.
• These policy changes were helpful in cushioning Bahrain from the severity of the global recession.
• Fortunately, the projected deficit ended up 50% lower because of stronger oil prices during the year, although indicators for 2010 once again point to a shortfall of US$1.9 billion.
• The deficit is expected to be financed from reserves accumulated during period of firm oil prices, which ended in the second half of 2008. Like fellow GCC member states the petroleum sector accounts for the bulk of Bahrain’s total income.
• The Bahrain Economic Development Board (EDB) says a slow but durable economic recovery was visible in the first quarter of 2010 and predicts the outlook for all sectors in the current year to be firm, barring property development, where growth will tend to remain flatter through the first half of 2010.
• According to the EDB, output growth is expected to pick up to a little over 4% in 2010 and reach 5,5% in 2012. Consumer price inflation was less than 2% in 2009 and no substantial acceleration is expected in 2010.
• EDB points to considerable investment planned for the oil and gas sector, regional tourism to the country remains buoyant, manufacturing continues to perform well and services such as logistics, education and health are expanding. Household consumption is expected to continue to strengthen over the coming year while investment spending will remain moderate, reflecting the downturn in property development.
• Bahrain benefits from favourable geography and macroeconomic stability, being one of the most mature and diversified economies in the Arabian Gulf over the past 30 years. Its highly developed communication and transport facilities have made the country home to numerous multinational firms with business in the MENA region.
The GCC Realestate Market
• One of the focal points in the diversification drive of regional Gulf economies has been the development of the real estate sector. Today, real estate and infrastructure development play a key role in development, fuelled by factors like population growth, capital inflows, high liquidity from oil revenues and asset creation by financial institutions.
• The global economic crisis saw property development remaining weak throughout the GCC as lending became more cautious. However, with most regional economies growing more strongly in 2010, the most recent data suggests that the real estate is already on the road to recovery and stability, with investor confidence also being restored.
• In fact there never was any real loss of creditor confidence in the region because of the strong net external asset position of the major oil producing states, although a recent study did show a lack of trust in developers following the downturn.
• The study reveals that the Gulf region offers good value for money for real estate investors at present with two thirds of would be property buyers intending to purchase in the region in the future despite being more aware of the risks involved.
• The GCC has always been an attractive investment destination for foreign investors. Its real estate and construction markets retain a number of advantages over other emerging markets. While the construction sector benefits from massive investments in infrastructure and industry, the expansion of real estate is driven by relaxed ownership laws, tourism and retail growth and favorable demographics, which will raise the demand for housing from a growing young indigenous population and an equally rapidly increasing expatriate population.
• Installed capacity for cement and steel production is projected to rise over the next few years pointing to greater demand to meet the resurgence in construction activity. The total value of real estate projects in GCC, estimated at 9% of GDP in 2009, is expected to reach 12% by 2012.
• There is evidence of developers across the Gulf states redrawing plans to include housing for middle-income families in response to the real estate market downturn. Although partly due to their need to cut costs, the response is largely because middle-income families - both indigenous and expatriate - are now driving demand in a more cost-conscious market.
• Government support for the real estate development is high in Bahrain to reduce the state’s dependence on oil. There is a concerted effort to build the sector on strong foundations through proactive state and central bank interventions to improve liquidity and make dealings in the sector more transparent.
• The Ministry of Works sees the need for infrastructure to keep pace with the property development, and has drawn up a long-term plan with a completion date in 2021. There is also hope that this support will encourage investment in the industry.
• However, some public infrastructure projects have been delayed - and a few put on hold - as the ministry looks for private investment to fund the work.
• The retail market has been encouraged by the introduction and subsequent growth of mortgage products. This marketplace is also opening up to expatriates in the country with freehold property rights, although the absolute level of bank lending continues to be low.
• The Kingdom has not experienced the same level of speculative activity in its real estate market as seen elsewhere in the Gulf region. Many real estate projects have been undertaken to meet genuine housing demand rather than for speculative purposes so they have been less affected by the economic downturn. Bahrain’s real estate market has thus remained comparatively stable, despite the reduced availability of international credit resulting from the crisis.
• However, the increase in the supply of properties in the high end segment in the past had driven down prices and rents. On the other hand, demand for middle and low income housing is expected to be buoyant considering the supply shortage.
• Off-plan residential sales in 2009 appear to have been negligible but residential demand is expected to pick up in the second half of 2010 after remaining flat in the first half. However, the outlook remains positive for the sector given the announcement that the government plans to build 43,000 low cost homes by 2014 and private sector developers claiming 80,000 new housing units will be required by 2020. This assessment appears to be backed up by the low levels of project cancellation that there were during the current downturn.
• The government has also announced its intention to construct six new government housing projects in the Bahrain Northern Governorate and work on the projects is expected to begin shortly.
GCC: The Emgerging Giant
• One of the consequences of the current economic downturn has been a recognition of the emerging economies of Asia, the Middle East and Latin America as the new global growth engines. The GCC will likely be a key beneficiary of this process with favorable growth prospects underpinned by sound government policy and strong structural drivers.
• The GCC countries are well positioned to assume a critically important position in the emerging new global order. Their combined share in the aggregate global GDP has been steadily climbing, from 0.85% in 1990 and 1.08% in 2000 to 1.54% in 2008 and is further set to advance to 1.8% by 2020.
• The region’s global weight extends far beyond the absolute numbers given its strategic importance as a hydrocarbons supplier and one of the leading global repositories of government assets. It is also a prime focus for inward global investments.
• The GCC has also become increasingly adept at capitalizing on its geographic location as a transit hub between the booming emerging markets of Asia and the industrialized economies of the West.
