Extra supply casts big shadow over Bahrain’s real estate sector

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• More villas and apartments completed
• Office market is ‘pretty flat’
• Deal volume down 3% in Q1

The completion of a raft of developments in Bahrain has dampened hopes for strong growth in its real estate sector this year. 

A flurry of activity at the end of 2023 led some analysts to predict stronger growth this year, after a period of low-single-digit increases or dips in prices, rents and deals.

In 2023, the volume of property deals rose more than 24 percent year on year, while their overall value dipped by 1.2 percent, according to estate agency Savills.

However, the number of transactions also trended downwards in the first quarter of this year. That was 3 percent lower than in the same period of 2023, Savills said in its latest report on Bahrain, citing figures from the Survey & Land Registration Bureau.

In what is now firmly a tenant’s market, rents dropped across the board on an annual basis, with only high end apartments holding out.

Onyx Residences by Kooheji Development, Al Naseem Phase 2 Villas by Diyar Al Muharraq and Wadi Al Riffa by Bareeq Al Retaj are among the residential developments completed in Q1, which Savills expects to suppress property prices.

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Government support for affordable housing still provides the strongest anchor for the residential sector, according to analysts.

“The feedback that we get from developers is they're very much focused on developments which are affordable,” Stephen Flanagan, Knight Frank’s head of valuation & advisory for Mena, told AGBI. 

“They have the Mazaya programme, where if you can build a house to a certain size and price, it’s effectively subsidised by the government for Bahrainis, so those products do quite well.”

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Bahrain is the most heavily indebted country in the GCC, with government debt at 124 percent of GDP and growing.

Mounting international interest in high-end Gulf property is also helping to prop up beachfront real estate in Bahrain, but even this segment is losing out to competition from Dubai.

“Bahrain’s coastal location and flourishing high-end tourism industry continued to drive demand for luxury waterfront properties, which appeal to buyers seeking exclusivity and comfort,” said Hashim Kadhem, Savills’ head of professional services in Bahrain.

Diyar Al Muharraq

“There is supply there, but people prefer the UAE,” said Flanagan. “There is a lot of interest from Kuwaitis, fewer Saudis and some expats, but it's a different buyer pool.”

Oversupply is also an issue in the Bahrain office sector, Savills warned. Rents are contracting and prices have been relatively stable, but at risk of a squeeze as projects such as Sayacorp, Future Generation Reserve Tower and Seef Boulevard are set for completion soon.

“The office market is pretty flat. Bahrain was previously the financial centre of the Middle East, but now the UAE and Riyadh have really come to the fore,” said Knight Frank’s Flanagan. 

“There is plenty of office space in Bahrain and the occupancy rates even in the better buildings are not that high, so rents have been softening.”

Last autumn Knight Frank found that an “excess of retail inventory” was constraining the real estate sector's performance, and developments in the pipeline risked “diluting” prices and rents further.

Support from Saudi Arabia, Kuwait and the UAE, in the form of large financing or development deals, will play a vital role in the continued expansion of the Bahraini real estate sector, according to industry watchers.