CBRE: Bahrain Market View Q3 2011
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The road to home finance has been a long one for the Kingdom, but with its highly anticipated mortgage law edging ever closer to ratification, would-be homeowners and financial institutions are gearing up for a new era of opportunity.
With the announcement this year of a US$66.7 billion initiative to address the demand-supply imbalance in the Kingdom’s housing market, social infrastructure spend is topping the Government agenda as it focuses on building affordable homes for the future.
The South-East Asian island has seen a number of distinctive developments come to fruition over the past few years as the country further establishes itself.
There was little meaningful indication of a business rebound in Bahrain in the early part of Q3, although this was not entirely unexpected given that the combination of summer and Ramadan, are typically associated with a market slowdown.
However, as Q3 drew to a close, market activity levels picked up as the business community geared up to finish the year on a positive note.
Business Monitor International (BMI) announced that the Bahrain economy expanded by only 0.7% in the year to the end of Q2 2011, with second quarter performance markedly up on the dismal Q1 during which the economy actually contracted by 1.4%.
BMI forecasts place Bahrain’s real GDP expansion to be 0.5% in 2011 and 1.2% in 2012, while an analyst’s poll by Reuters forecast GDP growth at 3.2% for 2012. Although the political crisis did dampen the country’s short-term economic outlook, the Government’s firm stance in pushing through reforms is likely to limit the prolonged effects.
In July, Bahrain was removed from ‘Credit Watch Negative’ by Standard & Poors which cited ‘the diminished near term political tensions and our expectation that increased public spending will lift economic growth next year’ in its statement on Bahrain.
On July 1st, King Hamad initiated a ‘national dialogue’ to discuss meaningful reforms, and in late September Parliamentary by-elections were held. Although the national dialogue nor the election had the full support of the opposition Wefaq party, these steps were necessary to move forward and indicated the Government’s commitment to restoring stability and order to the Kingdom.
Infrastructure projects worth BD14 million were awarded in July and August, including projects for roads, electromechanical maintenance and pumping and sanitary works at 30 schools. However, this and other economic stimuli such as a US$1 billion increase in spending on public wages resulted in a 22% jump in spending and a deficit of around 10% of GDP.
Earlier this year Saudi Arabia, UAE, Kuwait and Qatar approved US$10 billion in aid over the next 10 years, and although Oman is set to receive its first drawdown of US$1 billion in 2012, there has been no word on the Bahrain financial assistance.
Understandably, the tourism sector in Bahrain has been especially hard hit and in addition to weak occupancy and rate conditions in the Kingdom’s hotels , cruise liners have also dropped the Kingdom from their itineraries in the short term.
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