The "rampant" land speculation that took place in 2007 and 2008 has resulted in large areas of Bahrain being effectively "locked" from development, at least in the short term, according to CB Richard Ellis.
"Many projects will be held back because economic circumstances have altered so significantly since the original land purchases were made that they simply do not stack up any more, especially at the often excessive prices paid for the land," the global consultancy said in a report on Bahrain property market.
Rental rates, however, seem to be holding up for residential properties well across the board as do commercial office rates in popular areas of the country.
There are numerous residential real estate projects under way in Bahrain with the most highly publicised being the upper-income luxury apartment projects in Juffair, Amwaj islands, northern Bahrain (Seef, Villamar, Reef Island, Marina West, Raffles City and Bahrain Bay). While few projects have been formally cancelled, many have been put on hold or delayed until new construction contracts have been negotiated.
Given that the Bahraini population is very young (more than half of all Bahrainis are under 20) and that most national and expatriate employees fall into the low income category, the vast majority of housing required by the current population falls into the low-cost or government housing categories.
In recent years, the total population has risen by roughly 80,000 per annum which, given a housing ratio of about five household members per unit, would create a requirement for 16,000 units per annum, said the report.
"When combined with the obsoletion of current stock and an existing government housing deficit of around 40,000 units, the completion rate of around 10,000 per annum in the past few years has fallen well short of overall needs," it added.
There is a substantial excess in the luxury apartment sector and a substantial shortfall in the government/ low-cost housing sector.
Moreover, the cost of mortgages in Bahrain is prohibitive, and partly as a consequence of this, the number of sales made during 2009 were minimal.
Although transaction activity has come to a virtual standstill, occasional sales have still been made at "spotty" prices. In general terms, where "distressed" sales have been made, the seller has been able to either recoup their initial outlay or still make a small profit, the report said.
Rental rates for office space have fluctuated in tune with demand and supply imbalances, varying economic conditions and improvements in the quality of space.
"During 2009, there has been a slight downward trend in achieved rents and we would expect this to continue in the short term as new supply enters the market," the report said.
As a result of current economic conditions, the demand for new quality office space has softened and will probably continue to be so in the short term.
The current aggregated occupancy of Class A office space in Bahrain is approximately 70 per cent, but this is slightly misleading in that some areas are chronically undersupplied while others are performing poorly in terms of both occupancy and rent, said CB Richard Ellis.
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