With gains in the Bahraini real estate market demonstrating a gradual return of investor and developer confidence, a drive to restart work on long-delayed residential developments is likely to give further impetus to the recovery.
A new committee, which began work in mid-February, will help solve issues related to stalled developments, which have blighted the sector in recent years. Other measures to reform the housing market include the introduction of an upgraded code for tenancy agreements, which will offer measures such as enhanced protection for leaseholders, and a faster resolution of disputes for landlords and tenants.
The stalled real estate committee, operating under Bahrain’s Supreme Judicial Council, has been appointed to oversee the resumption of dormant property developments. Charged with assessing stalled projects referred to it by the Ministerial Committee for Construction and Infrastructure, the committee can take action that will resolve disputes or settle rights issues, amongst other activities. Rulings will be deemed as final and can only be appealed to the Court of Cassation.
The burden of these inactive projects on the economy, particularly in terms of financing, is considerable. According to the Central Bank of Bahrain, the debts owed from stalled property developments as of mid-2014 totalled BD177m ($473m).
Among the developments that may be re-launched is the Marina West project near Budaiya, which has been inactive for five years and was referred to the judicial committee at the beginning of March. The development will add more than 1000 units to Bahrain’s housing stock. Other projects include the Amwaj Gateway development, Villamar, Marina Reef, Riffa Views and an unnamed Al Areen Holding residential and commercial development. According to a study completed by the Bahrain Chamber of Commerce and Industry these projects together would cost up to $400m to complete.
In a further bid to shore up confidence, a new requirement specifies that developers must open an escrow account to store 20% of the total value of a project, 5% of which may only be released a year after buyers receive their properties, to avoid funds being misplaced.
The new measures will offer reassurance to domestic and foreign investors, according to Faisal Durrani, international research and business development manager for property consultancy Cluttons. “The government’s intentions are clear and the timing is near perfect,” Durrani said in a March report. “Bahrain’s residential market is enjoying a period of exceptional stability, with rental value growth coming in at roughly 1-1.5% each quarter for the past 18 months or so. From an investors’ perspective, the stability has a tremendous draw, particularly in a market that is starting to find its feet again.”
Bahrain’s real estate market has shown considerable recovery since 2013. According to a real estate consultants CBRE, , demand for prime properties, especially those with good access to services and retail centres, picked up in the final quarter of 2014. Rental charges also saw a modest increase last year in a number of prime areas.
The positive sentiment is echoed by property developers and industry participants, including Amin Al Arrayed, CEO of First Bahrain, which is starting work on a mixed-used development in Janabiya. "The real estate market in Bahrain is picking up due to a confluence of positive factors. Banks are more willing to lend, meaning better interest rates for developers,” Al Arrayed told OBG. “New legislation is reassuring developers and investors, there is surplus liquidity in the market, and contractors are giving competitive prices”.
Further developments include measures unveiled at the start of the year which will help remove uncertainty for tenants in residential property.
Under the new regulations, which came into force on February 7, caps have been changed on rent increases, with the maximum rise being set at 5% every two years for residential property rather than the previous 10%. Other measures include renters being given one week’s grace before an eviction notice if rental payment is late and tenants being allowed to terminate their contract or seek a reduction in rent if new construction begins in the property where they reside.
While the regulations are being applied to new leases, landlords with existing agreements have been given six months to bring their contracts into line with the new regulations. It is estimated that this will affect at least 200,000 tenancy agreements in the capital alone, with more in regions outside Manama.
According to legal experts, the regulations will both strengthen the position of tenants and landlords through the creation of a Rent Disputes Committee. “Previously, local courts were inundated with cases relating to disputes between landlords and tenants,” according to Zu'bi and Partners Attorneys & Legal Consultants. “With the establishment of the committee, all disputes related to any provision of the new law will be resolved outside of court in a timely manner”.
Despite possible concerns over a potential cooling of investor sentiment due to restrictions on rental increases, the new measures are widely regarded as positive step for the real estate sector, which will bolster the confidence of a rallying market. ( OBG )