Bahrain’s plans to address a housing shortage by inviting private developers to build thousands of new homes in a public private partnership (PPP) scheme will tackle one of the country’s most serious social issues.
More than 12 firms have expressed interest in the project, which should be tendered by the end of March. But key to the success of the project will be the support given by the government of Bahrain.
Banks are reluctant to finance real estate in the region after the sector’s bubble burst in late 2008. Lenders will look for explicit state backing on the project to come onboard.
Legal agreements binding governments to buy from completed projects in offtake deals have been key to the success of construction of independent power and water production facilities in the region. Applying this model in social housing will be difficult. Prospective bidders who attended a meeting to discuss the housing project with the government left without any clarity on the offtake plan.
Bahrain is committed to supporting the social housing scheme, but has yet to clarify exactly how strong that support will be. The government is studying what level of state support is necessary to raise private capital. Bahrain’s sovereign bond planned for April will contribute to the scheme’s funding.
If Bahrain manages to pitch this right, it could prove to be a model for solving funding issues for social housing schemes in the region.