According to Bahrain’s Housing Ministry, there are currently some 47,000 local citizens waiting for a house to be allocated to them by the government.
These people earn less than BD900 ($2,387) a month and, under the country’s constitution, are entitled to be provided with accommodation. However, a chronic housing shortage means that, although plans have been launched to address this, a solution is still years away. “Some people have been on the waiting list for 17 years,” says a source close to the Housing Ministry. “It is fair to say that the government is in hot water with its people.”
Solving the housing crisis is Manama’s highest domestic priority and is at the centre of economic reforms being pushed by Crown Prince Sheikh Salman bin Hamad al-Khalifa and the Economic Development Board (EDB).
The chief executive of the EDB, Sheikh Mohammed bin Essa al-Khalifa, tells MEED: “A key objective of the reform programme and a principal aim under our National Economic Strategy (NES) is to elevate the national living standards, with one key element being to increase the supply of affordable housing in the kingdom to serve the eligible population.”
Bahrain plans to build 20,000 houses over the next 10 years using the public-private partnership model
Source: Economic Development Board
The EDB is working with the Housing Ministry on the development of the country’s first public-private partnership (PPP) social housing project and is set to issue a request for proposals (RFP) from contractors/developers for the first phase of 5,000 housing units to be built in three locations. These are Al-Buhari to the east of Al-Riffa; an area of reclaimed land known as North Bahrain Newtown and Al-Lawzi.
Ultimately, the PPP could lead to the delivery of 50,000 properties, but for now the plan is to build 20,000 over the next 10 years.
According to contractors interested in bidding for the scheme, the government has now drawn up a shortlist of prequalified companies to whom it will issue the RFP. About 12-15 firms are understood to be prequalified. An award is scheduled to be made by the end of 2010 and construction on the sites should commence in early 2011, with the first units being delivered in 2013.
“Significant progress has been made so far and we have seen great interest from a significant number of local, regional and international companies in bidding for this project,” says Al-Khalifa. “The Ministry of Housing, under the directive of Prince Salman, have had constructive discussions with partners in government, as well as the private sector.”
The Housing Ministry is being advised by Ernst & Young in structuring the PPP contract. “Basically what we have done is look at best practice from around the world, particularly the PFI [private finance initiative] model used in the UK in terms of how they are partners with the private sector, and adapted this to Bahrain’s housing sector,” says Abrahim Akkawi, Ernst & Young head of infrastructure and PPP advisory services.
In structuring the contract, the Housing Ministry will be using the concept of availability payments over a 25-year period. “Like with the highway project that we are advising on in Abu Dhabi, the Mafraq-Ghweifat road, the government will pay for an availability of housing and the corresponding services.”
For the private sector this means that the revenue risk in terms of securing a buyer, remains with the government. “The private sector is not necessarily going out seeking tenants to buy this social housing stock. The government is buying this service and will earmark who is going to be occupying these houses. Revenue risk stays with the government in this case,” says Akkawi.
There is no shortage of demand with 47,000 people on a growing waiting list. There are also thousands more that fall into a higher low-income bracket, who are also eligible for help. According to the current system, nationals earning between BD900 and BD1,200 a month are entitled to a low-cost loan or a free plot. However, they must begin building on the land within 10 years or the government can reclaim it.
The housing PPP will address both streams of low earners, says Akkawi. “All I can tell you is that all of this will be taken into consideration in the request for proposals. We are definitely addressing two groups of people,” he says.
Al-Khalifa confirms that the model will accommodate those in most need. “In line with our overall Vision 2030, which is upheld by our three core principles of sustainability, competitiveness and fairness, we need to ensure that every Bahraini is granted the opportunity to live a secure and fulfilling life in order to reach their full potential. Our main objective therefore, in terms of housing, is to find a model that will allow people from different income backgrounds to have access to affordable housing, while focusing closely on those that need it most,” he says.
Significant progress has been made so far and we have seen great interest for bidding on this project
Sheikh Mohammed bin Essa al-Khalifa, EDB
Contractors bidding on the scheme will find the contract documents contain details of land plots, and housing unit design specifications, but it will be up to the contractors to demonstrate how it will use the land most effectively. “As with a typical PPP, we are relying heavily on the innovation of the private sector. The government will be providing plots of land that have been subject to intensive planning and masterplanning. We will prescribe sizes and plots, and issue design specifications, but if developers can come up with innovations, we will welcome that,” says Akkawi.
Unlike the power sector, the government will not be taking an equity stake in the developer consortium. It will instead provide the land, and the tenant, and make payments depending on availability and service levels for the next 25 years. Just one contract is to be tendered for the first phase.
Involving the private sector in this way is a key part of the Bahraini national economic strategy and it also minimises the government’s capital expenditure in the early stages of the project. “The ministry’s budget is peanuts and we need about BD350m to get these projects done over the next five years,” says a source at the Housing Ministry.
By using a PPP model, initial capital costs will be invested by the developer, who will be incentivised to get the houses built as quickly as possible. EDB hopes by 2014, the 17-year waiting time will be a thing of the past. “Successful alliances between state and property developers means we are able to work productively towards shared NES goals and realise the ambitious housing projects envisaged as part of implementing Vision 2030 to decrease the waiting period for affordable housing to five years by 2014,” says Al-Khalifa.
Local contractors are relieved that the government has opted for this type of PPP contract rather than rolling out the ‘Smart Construction’ project designs launched in mid-2009 and inaugurated by the Housing Ministry. These designs involved the use of Chinese contractor Intechbuilding’s low-cost steel framed housing models. To develop these houses, National China Academy signed an agreement with Eskan Bank to establish a centre for promoting such methods. Eskan Bank is the main lending institution for low-cost housing in Bahrain and in the past 30 years, it has issued loans of BD541.2m to 35,130 citizens.
We have a traditional building sector with veteran contractors that have worked with the ministry for 35 years
Housing Ministry source
Intechbuilding claims houses using their methods can be built in two months in contrast to the construction time for traditional homes of 12 to 18 months. As a test, two steel-framed houses were built at Hamad Town and were unveiled to the general public by the Housing Ministry for feedback in February 2010. Local contractors feared the method would be used for all low-cost housing in the kingdom, resulting in extensive use of Chinese contractors and raw materials.
“A number of contractors have written to complain about the Smart project, they are concerned that it means BD350m will be sucked out of the country,” says the source close to the ministry. “We have a traditional building sector with veteran contractors that have worked with the ministry for 35 years. They know the ministry and understand how it works. They are patient over payments and are really good contractors. They do not want to be pushed out.”
The good news for local contractors is that the Smart project will not be used, according to Al-Khalifa. “The Smart housing project is not a viable solution for Bahrain at this point in time. First we need to ensure that the right PPP model is established to ensure that it caters to the needs of Bahrainis in a sustainable way. Once this is put into place, we can then focus on increasing efficiency,” says Al-Khalifa.
The PPP project is open to both local and international firms, and the Housing Ministry will want affordable housing to be built at an affordable price.
It may have taken time for Manama to address the housing issue in the country, but both the private sector and general public are encouraged by the new approach. Sources close to the Housing Ministry say the decision to separate its activities from the Works Ministry in December 2007 delayed progress, but the EDB is pushing for more action.
There is still a long way to go. The PPP structure must be finalised. The RFP tender must be issued. The contract awarded, and houses built, before Bahrain’s citizens will start to feel the benefits of the policy. However, there is genuine sense that momentum is building in solving this key issue.