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Despite its five thousand year history, US allied Bahrain is
an ‘emerging’ nation and has been in a significant state of transition since
the current king and former amir of Bahrain Sheikh Hamad bin Isa Al Khalifa
came to power in 1999 and it’s critical that any investor examining the
property market prospects in Bahrain for profit potential in 2007 and beyond
understands the nature of the development of the country before they consider
committing to it.
While the current period of transition now means that
Bahrain has become one of the most prosperous and attractive nations in the
Gulf region in which to live, work, invest and prosper, it’s rapidly expanding
economy and significant political changes have created an underlying feeling of
destabilisation among certain factions of the local population.
While generally speaking Bahrain’s property market prospects
for 2007 are very positive indeed and this article covers the positive
prospects for the market, it also details the underlying problems that could
undermine the short term attractiveness of the country’s real estate sector so
that investors can make as informed a decision as possible about market entry
and investment commitment.
Since the current king of Bahrain came to power his nation
has made incredible progress…on the political front Bahrain is now allied with
the likes of the USA and UK, it has a free trade agreement in place with
America, it has open elections and in 2006 the first ever female
parliamentarian in any Arab Gulf country was elected into office in Bahrain. On
the economic front the king of Bahrain has been key to the transition of his
nation away from its economic dependence on oil and going forward into 2007 and
beyond, Bahrain has a strong economy with very positive annual GDP growth
rates.
All of these factors have indirectly started a property
market revolution which is largely fuelled by international citizens moving in
greater numbers to Bahrain to live and work. The reason for this is that
Bahrain is located in an important strategic position in the Gulf and has taken
it upon itself to be the nation offering least resistance to multinational
businesses requiring a physical presence in the region. As a result of
attractive legislation, transparent business practices and a low/no tax policy,
Bahrain has succeeded in attracting large numbers of international and
multinational corporations to its shores who each require a base in the Gulf
region and who each recruit large numbers of international expatriates who are
now moving to live in Bahrain.
This resultant strong inward migration of professional
expatriates demanding housing saw Bahrain being one of the first of the Gulf
nations to grant freehold real estate ownership rights to foreigners. This has
meant that now international citizens and investors are buying up swathes of
real estate as it comes to the market and forcing up property prices out of reach
of the local population. In addition to this situation, supply of property
especially in the main commercial areas is in limited supply which has also
resulted in a frenzied rental market too which further excludes many local
citizens – clearly all of this activity has created a feeling of frustration
among local Bahraini citizens and it is this frustration that is causing an
undercurrent of disaffection.
There is another factor affecting the housing market in
Bahrain as well – as Bahrain is joined by a 25 km causeway to neighbouring
Saudi Arabia and yet is a far more liberalised and tolerant country, Westerners
working in Saudi are also choosing to live in Bahrain and to commute across the
King Fahd Causeway rather than live directly in Saudi Arabia. On the one hand
all of these factors mean that there is strong and increasing demand for
commercial and residential property for sale and rent in Bahrain among an
increasingly affluent international community – this means that in 2007 and
beyond there will be a perfect environment in Bahrain for property investors to
exploit.
On the other hand however there is mounting tension among
those local people who cannot continue to afford the rising real estate prices.
While this tension goes largely ignored some are starting to say that Bahrain
has moved too fast in developing new areas of its economy and in allowing
multinational companies to set up operations in the country. These
multinationals have been accused of largely employing expatriate staff in a
country where, especially among the Bahraini youth, there are significant
unemployment issues and also minimum wage issues.
So, while international demand for property in Bahrain is
strong and increasing and unlikely to subside in 2007 which means investors
have a hot market to target, increasing land and construction costs and a
growing division between local affordability and real estate
prices is creating a very real environment of disquiet that should not go overlooked
by an investor determining whether the risks of market entry outweigh the
prospects for property market profit.
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