Rents for residential properties in Bahrain stabilised during the third quarter this year and is expected to remain stable during 2018 after dropping in the first half of the year, according to research from UK-based Cluttons.

“…the residential rental market in Bahrain is likely to remain stable for the remainder of 2017, following the steep corrections recorded so far this year. We expect 2018 to see a continuation of stability, as the market absorbs the falls registered this year. This is, of course, predicated on the residential market being exempt from any form of VAT,” said Cluttons in latest Bahrain Property Market Outlook report.

Overall, rents have weakened by an average of 16.2 per cent when compared to this time last year, and are down by roughly 8 per cent since the start of 2017. In general, villas have outperformed apartments.

The fall in rents during 2017 is due to an increase in supply and softening demand as a result of slower economic growth.

The oversupply could be absorbed by domestic buyers. Cluttons says that with roughly 5,000 units being completed each year, there may be the potential for new supply to be absorbed by domestic buyers, provided that units are priced under BD120,000 ($318,000) in order to qualify for a social housing loan.

At present, the Ministry of Housing has a social housing waiting list of approximately 55,000, so demand appears as though it may exceed supply. The problem is many of the schemes currently being built are geared towards the luxury end of the price spectrum.

Demand for office space has also softened, although rents for both fitted and shell and core space have remained stable since the start of 2017. Cluttons says this is because of the sharp rent corrections that have been recorded since 2010; shell and core space is down by roughly 40-70 per cent, while rents for fitted space are down by a third to half over the same period.

Cluttons says 2018 may well see further falls in headline asking rates should VAT be imposed on the commercial office market, as is the case elsewhere in the GCC.