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Bright horizon for Bahrain

Bright horizon for Bahrain

September 2016

The decision to allow foreign investors 100% ownership in various market sectors will have a positive long term impact on the Kingdom’s property markets.

 

 

Bahrain’s decision to allow foreigners to acquire 100% ownership in various sectors of the market signifies a bright spot for investment, in the midst of an economy that’s facing the impact of low oil prices.

The decision comes as government approved an amendment to the existing Commercial Companies Law. Under the new law, 100% ownership will be granted in residency, real estate, administrative services, health and social work, information and communications, manufacturing and technical activities amongst others.

The new law is expected to fuel growth in the country, generate jobs and create an attractive economic environment for foreign investors. According to experts, the law comes at a pivotal time as oil prices continue to drop across the Gulf region.

IMPACT ON REAL ESTATE

According to Majed Al Khan, CEO of Gulf Finance House, Real Estate (GFH), a financial investment group, the law will attract a new category of investors both for individual, residential investments as well investments of a larger and more commercial nature.

“We expect this to positively impact investor confidence among this new segment of investors, allowing them to have full ownership and control over their investments in the Bahrain market. Bahrain is already among the most investment friendly destinations in the region and this makes it even more so,” he says.

Ali Murtaza, Director of Business Development, Tourism and Leisure for the Bahrain Economic Development Board (BEDB), agrees, saying the announcement by the government illustrates its commitment to protecting investors when it comes to ownership rights.

“On the real estate side, this is a positive move which will allow more businesses and their teams to settle and own property in Bahrain accordingly. In terms of structuring, this also allows for easier setups in SPV (Special Purpose Entity) structures for larger developments, which would assist the development markets,” he says.

Harry Goodness-Wickes, Head of Cluttons Bahrain and Saudi Arabia explains that since economic growth in Bahrain had been subdued ever since oil prices fell from record highs two years ago, the decision to allow 100% foreign ownership will likely have positive implications for business.  “The move will also improve investor confidence and make Bahrain an attractive place to work and live,” he says.

For Faisal Durrani, Head of Research at Cluttons, the decision is likely to attract companies to set up a Middle East foothold in the Kingdom and for the first time, placing Bahrain on a “competitive footing with some of the region’s mega freezones and business hubs.”

“We don’t expect a rush of companies going in overnight, but in the long run it does stand to benefit the Bahraini economy should businesses base themselves [there] due to cheaper real estate and easy access to KSA as Bahrain positions itself as the key gateway into Saudi Arabia,” he adds.

ECONOMIC BOOST

While the price decline in oil has had a ripple effect throughout the Gulf countries, Bahrain has tried to insulate itself from further oil price shocks.

According to Murtaza of the BEDB, the country is addressing the fiscal challenges imposed by the unprecedented drop in oil prices.

“The government has started implementing a programme to further drive economic diversification, streamline recurrent expenditure and restructure subsidies,” he says. “Bahrain is also set to invest over USD 32 billion – comparable to its annual GDP – in key infrastructure projects over the coming years, across a range of sectors including transport, housing, manufacturing, energy, tourism, healthcare and education.”

Durrani of Cluttons adds: “We’ve seen OPEC governments throughout the world trying to diversify their economy by identifying new revenue streams, last year we saw the UAE – the first country in the GCC – move to address energy subsidies and now we are seeing Bahrain do that as well. As a result, inflation has risen across the country, rising from 0.7% in December to 3.8% in April, the highest level seen since 2013.”

In addition, Durrani says that Bahrain continues to benefit from a GCC support fund where it receives a billion dollars in aid from the rest of the region. It has been using the fund for housing infrastructure and social services. “There a lot going on in the country. We are seeing the transition of an emerging economy to one that’s maturing in the face of the oil price situation,” he says.

Bahrain has also been getting a major boost from the King Fahd Causeway, which links the country to Saudi Arabia, and opens Bahrain up to the movement of goods and tourists.

“Every weekend about one million people use the Causeway and this is a significant revenue stream for the country as [Saudi] tourists pour into Bahrain to access a slightly more cosmopolitan lifestyle,” says Durrani.

REAL ESTATE INVESTMENT

Experts are in agreement that Bahrain’s real estate sector continues to perform well with ongoing and strong levels of investment, with further growth expected.

“Prices remain stable and affordable, when compared to other regional markets, with room for further appreciation. This makes the Bahrain market an attractive investment destination particularly in areas related to hospitality, retail and mix-used projects that combine tourism, leisure and lifestyle facilities,” says Al Khan from GFH. There is a market gap for the latter as these types of mixed-use projects remain in high demand among locals as well as weekend and other visitors, he adds.

As a result of the demand for leisure property, one of the country’s best performing assets include waterfront property, says Al Khan. “Given Bahrain’s island location it comes as no surprise that both developers and end users see the value in developing and seeking investments in new concepts and lifestyle, leisure and commercial centres. As noted, these are in high demand both from the local market and as a result of Bahrain’s position as a tourism hub and prime weekend and family destination for neighbouring GCC markets,” he says.

For the BEDB, Bahrain’s growing tourism sector is making way for long-term investment opportunities. “Mid-priced resorts and beach front properties, such as the Anantara Hotels Resort in Durrat Al Bahrain, the Fairmont Bahrain Resort in Bilaj Al Jazayer and the One and Only Hotel in Seef, are some of the initiatives we’ve witnessed in this sector,” says Murtaza.

While there is a demand for leisure and tourism developments, Al Khan of GFH says there is also a strong need in the market for the development of greater high-end residential developments and high-quality finished housing projects for the middle-income segment.

Ali Murtaza adds that freehold apartments also offer good yield and resale opportunities based on attractive off plan prices; long term returns on investment potential reaches 7 – 10 % per annum over a 10-year horizon.

In an uncertain global economic climate, Bahrain continues to cushion itself against risks by finding alternative revenue streams, and playing to its strength of being among the most investment friendly destinations in the region.

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