Cluttons has issued its Bahrain Market Outlook report for Winter 2017/18
Cluttons have released its Bahrain Property Market outlook for the end of 2017 and the start of 2018, discussing the residential and retail real estate sectors of Bahrain, and predictions of VAT being implemented in the Kingdom.
At a glance:
Residential Market
Cluttons report shows that after rents retreated across the board at the start of the year, the market appears to be entering a period of stability, with average rents across the Kingdom firming during Q3. Rents in general have weakened by an average of 16.2% when compared to this time last year, and are down by roughly 8% since the start of 2017. In general, villas have outperformed apartments, however rents have dipped by 11% over the last 12 months. On the apartment front, rental rates in Juffair have experienced some of the sharpest corrections.
Harry Goodson-Wickes, Head of Cluttons Bahrain and Saudi Arabia commented, “For more than 18 months now, we have highlighted the risk of oversupply of apartments in Juffair and we appear to have reached a tipping point, where supply has exceeded demand. That said, with roughly 5,000 units being completed each year, there may be the potential for these units to be absorbed by domestic buyers, provided they are priced under BD 120,000 in order to qualify for a social housing loan. As it stands, the Ministry of Housing has a social housing waiting list of approximately 55,000, so demand appears as though it may exceed supply. However, many of the schemes currently under development are geared towards the luxury end of the price spectrum. Oversupply remains an area of concern and something we continue to monitor closely.”
Outlook for 2018
The Cluttons report shows that aside from the clear risks to overall demand levels for both residential and commercial property that stem from any further weakness in oil prices, a number of downside risks are being monitored, including value added tax (VAT) and infrastructure levy.
While Saudi Arabia and the UAE have forged ahead with plans for VAT, commencing on 1 January 2018, Bahrain is yet to declare its intentions on the formal roll out of a VAT regime. The implications of VAT in Bahrain are likely to be a spike in inflation, which may dent consumer confidence and spending. This would, of course, come in addition to the gradual erosion of state food and energy subsidies, placing household finances under further strain. The impact on the property market is still unclear, but if the Kingdom followed in the footsteps of the UAE by taxing all commercial sales and lease transactions, demand is likely to weaken further, driving down rents from their current low levels. However, if the Kingdom follows the Saudi Arabian authorities’ decision to tax buy-to-let residential property, there is likely to be a weakening in Bahrain’s second homes market.
Goodson-Wickes concluded, “While our expectation is for rents to remain firm this year, the retail market is expected to remain a bright spot in the Kingdom’s property market. 2018 is likely to see rental rates remaining firm once more as more supply comes online to match anticipated demand. The residential rental market in Bahrain, however, is likely to remain stable for the remainder of 2017 and to continue this stability into 2018, 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. As for the commercial market, the sharp corrections that have occurred in recent years have driven rents to all-time lows. This is why our view for 2017 is for flat growth, while 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.”
To see the full report, click here.
If you would like more specific information about the report, email Faisal Durrani, Cluttons Head of Research, via the contact details below.
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