Manama says it remains committed to tackling the shortage of low-cost homes, but it will need to proceed with many more large-scale public-private partnership projects to make good on its promise
Since protests erupted on the streets of Manama in 2011, the Bahraini government has found itself under increased pressure to appease large portions of the population.
A disenfranchised Shia majority has been calling for the authorities to do more with regards to social inclusion, employment opportunities and state support. Central to the discontent spreading across some of the countrys Shia communities has been the question of accommodation.
According to government statistics, there are currently 47,000 families on the waiting list to receive social housing.
In October 2013, Bahrain took an important step in addressing the shortage of low-cost homes, with the announcement that the first public-private partnership (PPP) housing project in the country had reached a financial close.
Last May, a target was set to build more than 40,000 government homes in eight years
The scheme had been launched before the 2011 unrest, with a consortium led by the local Naseej appointed preferred bidder in late 2010. Special-purpose vehicle Sharaka for Housing Projects Company was subsequently established to deliver the project and $450m in funding was provided by the local Ithmar Bank.
The project is being managed by US-based Hill International and entails the construction of more than 2,800 social and affordable housing units over a five-year period in Al-Madina al-Shamaliya and Al-Luwzi.
At Al-Madina al-Shamaliya, 1,618 social housing units will be built, along with 367 affordable villas and apartments. In Al-Luwzi, Naseej will develop 832 social units to be delivered to the housing ministry to allocate to families on its waiting list.
Local companies Cebarco WCT and Chase Manara, as well as Greeces Terna, are the main contractors on the initial phase. The first units are expected to be handed over in mid-2016.
Although the scheme took three years to reach financial close and was trimmed in size due to concerns about its feasibility, it set an important precedent not just for
Bahrain, but for the whole region. It was the first housing PPP negotiated in the Middle East, as well as the biggest single project ever awarded by Bahrains Housing Ministry. The legal adviser was the UKs Trowers & Hamlins.
In the current low oil price environment, the PPP structure will protect the scheme from declining government revenues as a result of falling hydrocarbons earnings. Bahrain finds itself extremely vulnerable to the recent drop in oil prices as the longer-term sustainability of its economic position continues to face uncertainty.
The countrys fiscal breakeven crude price has increased to more than $120 a barrel, from an average of $52 a barrel between 2000 and 2010, underlining its vulnerability to oil prices and growing social expenditure.
The governments debt burden has doubled since 2009 and stands at some 42 per cent of GDP. Estimates from ratings agencies suggest Manama is now in a net debt position of almost 10 per cent of GDP.
Although there was a recent government reshuffle, creating a new 17-member cabinet, the key economy-related ministries such as finance, oil, works, transport, housing and health remain the same and are likely to embark on a similar journey of high social spending.
However, the Shura Council once more postponed a vote on amendments to the housing law, which has been in place since 1976. The vote has now been pending for four years. The adjustments proposed included providing social housing for single women and mothers, as well as raising the salary cap for applicants. These changes would raise the number of people who qualify for public housing, thereby increasing the financial burden on the government and extending the waiting list.
Despite delaying the vote, the government says it is committed to tackling the housing shortage. In February, Shura Council member Reda Faraj told MEED: Housing is a key element of the kings efforts to increase political stability; the government is determined that even if other projects stall, the housing plan will still go ahead.
There is a lot of municipal land that we could utilise better by offering it to investors
Ahmed al-Ansari, Southern Municipal Council
Last May, a target was set to build more than 40,000 government homes in eight years, with new urban areas planned for Hidd, Sitra, the Southern Governorate, Salmabad and Muharraq. Further to this, in January, MEED reported the Southern Municipal Council of Bahrain had announced plans to develop unused land in the south of the country. It plans to draw up a list of all government-owned land, which covers an area stretching from Sakhir to Isa Town in the south.
This land will then be packaged according to its size, location and investment potential, before being offered to developers for long-term leases. What is now wasteland in most of the area covered by the governorate will in the next 10 years turn into an oasis of multimillion-dinar investment projects, said council chairman Ahmed al-Ansari. There is a lot of municipal land that we could utilise better by offering it to investors rather than leaving it unattended.
An important element of the solution to the housing problem is access to financing. In October 2013, the government introduced a social housing financing scheme, under which Bahrainis on the waiting list can apply for a loan to purchase their own home. Applicants have to be 35-45 years old and have a minimum monthly household income of BD700 ($1,857). They also need to be able to make a 10 per cent downpayment to access financing of up to BD90,000.
Mortgage instalments are capped at 25 per cent of the beneficiarys monthly income, with the government subsidising the remainder through the local Eskan Bank. Homes can be bought from an accredited developer or development, and the finance obtained from participating banks, which include Bahrain Islamic Bank and Ithmaar Bank. Naseej and Eskan Properties are among the accredited developers.
The 367 affordable homes being developed by Naseej in Al-Madina al-Shamaliya were offered exclusively to those on the housing list for the first three months of sale, then to Bahraini citizens with incomes of up to BD2,000 for a further three-month period, before being offered to all nationals and then finally being put on the open market, including being offered for sale to expatriates. The starting price of the cheapest unit was BD44,800.
While it is clear the authorities in Bahrain remain committed to developing social and affordable housing across the country, many more large-scale PPP projects with sizeable social housing components need to be signed to make serious inroads into shrinking the waiting list for homes.
Solid growth: Bahrain real estate sector sees more optimism
Despite continued political instability and the slump in oil prices, the real estate sector in Bahrain remained stable throughout the end of 2014 and moving into 2015, buoyed by solid demand. This year, the government has introduced new regulations into the market as well as encouraging the completion of several stalled projects in order to increase supply.
We are starting to see more positivity in the market and the market is getting stronger; you do not want to get to the situation where rents spiral out of control, says Harry Goodson-Wickes, head of Bahrain and Saudi Arabia at the UKs Cluttons.
In a preemptive move, the government is introducing mandatory tenancy agreements protecting the rights of both the landlord and the tenant, which are scheduled to be effective from April. The government is clearly making positive strides to increase the level of confidence and to heighten investor interest, says Goodson-Wickes. A lot of that is tied into the regulation; for example, making sure leases are registered and [ensuring] rent protection.
The draft proposals currently state that a residential building can only see a 5 per cent increase in rent every two years, while rents in commercial buildings can rise by 7 per cent within the same time frame.
In addition, the government has picked up several stalled projects to steamroll market growth. There have also been good regulations regarding stalled projects, another very good initiative, says Goodson-Wickes. As I understand, Villa Mar will start again and thats a deal by the local Gulf Finance House and Al-Rajhi Bank from Saudi Arabia.
Each project will be evaluated separately and dealt with accordingly, with some penalties for stalled schemes being rescinded to encourage developers to press ahead. The timing for a lot of the stalled projects is good for them to start moving again and the supply will be well absorbed, says Goodson-Wickes.
Commercial and office space in the country is still oversupplied, although some prime locations are enjoying occupancy rates of up to 90 per cent. Although details of the new legislation surrounding the restarting of stalled projects remain unclear, analysts say the efforts by the authorities will mandate that all new developments must use escrow accounts, ensuring all funds are in place prior to construction.
Provided these new regulations come in to play, the real estate sector in Bahrain should be able to remain on an upward trajectory despite the lower oil prices and political instability.
We havent seen oil prices dampen demand. Retail, for example, is not really attached to how the oil market is going, says Goodson-Wickes. [Property] demand, not just locally, but also from Saudi Arabia, is increasing. I would say [the sector] is well insulated.
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