Advice for Investors – by Adrian McMenamin, TRUE Real Estate

Advice for Investors – by Adrian McMenamin, TRUE Real Estate

As a property consultant, I am often asked by investors for advice and guidance. One of the most common questions I am asked is “Where should I buy?” As the conversation continues, I am often surprised at how poorly informed many are, considering that property investment is complex and involves such large sums of money. To invest wisely, buyers need to be informed, yet many are not.

For investors, it all comes down to ROI (Return on Investment). And ROI depends on four major points. These are: supply and demand, capital outlay, rental return, and capital appreciation. And these factors are interlinked.

Supply and demand
So, first consideration, is to buy where demand is highest, and supply is lowest. But which area in Bahrain is that? Bahrain Bay and Financial Harbour would probably top my list because, as yet, there is not one single residential unit there, and those few that are under construction, namely Waterbay and Harbour Row, are super luxury developments. With uninterrupted sea views, the architecturally striking Four Seasons Hotel in its centre, and high-end ‘The Avenues’ across the bay, this will, without doubt, be Bahrain’s premium area and house the country’s best addresses in the very near future. But of course, the best addresses, come at premium prices. However, it will always attract the most discerning tenants, with the means to pay high rental charges. So, yes, high capital outlay, but I would argue, high and guaranteed rental returns.

If looking for something slightly more affordable, and complete, then Seef is my next recommendation, closely followed by Reef Island. Residential stock in these areas is still low, but people are increasingly attracted by the high standard of the luxury towers, the convenience to their offices in the business district, the new embassy buildings, the proximity to Bahrain’s largest and most popular malls, and the ever-growing number of high-end speciality restaurants and coffee shops in the area.

Capital outlay
Many buyers focus solely on ‘getting a deal’, believing that the less they pay, the better the investment. I would argue that this is not so. Rather than solely focusing on buying the cheapest, a savvy investor will consider location, rental returns, outgoings, and likely price increases. So beware buying cheap just for the sake of it. My advice is to buy in the best building you can afford, in the best location, with the best view, even if it is smaller than you would like, or on a lower floor.

Be wary of buying where the service charges are low. Low service charges mean the building maintenance and services will all be compromised as there simply will not be enough funds to cover the expenses. The result will be that the building is quickly falling into disrepair, will look shabby, dirty and rundown, and may even be dangerous. A ‘bargain’ property in such a building is probably not such a bargain, when you consider that it will be difficult to attract a tenant, and ultimately, down the line may be unattractive to buyers. So, do not be put off by what may appear to be high service charges. They will be high for a reason, and quality should be assured.

Rental income
So, what about rentals? Of course, every investor wants to know about the rental opportunities, returns, and prices. Again, it comes down to supply and demand. Older blocks in Juffair and Amwaj Islands have seen rental costs drop significantly because of oversupply and an abundance of new, good quality residences. In Reef Island, no new stock has come online in the past two years, and in Seef, only a handful of properties.  Rental charges have fallen only slightly, if at all, in these areas, and are related to general economic issues rather than oversupply.

My recommendation is to look at new builds, in the best location, and go for luxury, and views. Spend more, to ensure the best investment. Go cheap, and your return on investment will almost certainly be lower in the long term. Rental demand and rental prices remain steady or increase in buildings that clearly stand out from the rest in luxury, location, and views.

Capital appreciation
Investors must also consider the capital appreciation over time. Yet again, this depends on supply and demand. Where demand is highest and supply is lowest, prices will rise, and vice-versa. Where supply outstrips demand, prices will drop as sellers compete to sell by undercutting other sellers’ asking prices. It is only when demand outstrips supply that prices rise.

When considering capital investment therefore, one must look to the future and consider what the housing stock will be in any area, in five years time. Look at how many new developments are under construction, and how many plots remain undeveloped. Construction in Juffair and Amwaj Islands are in full swing, with new towers springing up all over the place. On the other hand, development in Bahrain Bay, Reef Island, and Seef, is much more restrained. I believe these areas are likely to remain in a strong position over the next five years, regarding supply and demand, which will see property prices rise.

Two other locations worth mentioning in regards to capital appreciation are Dilmunia Island and the Marassi Al Bahrain development in Diyar Al Muhurraq. In my opinion, these are prime locations offering excellent investment opportunities. Essence of Dilmunia and The Treasure are architecturally striking developments, now completed and offering the height of luxury living to their residents. And one that all serious investors who are prepared to buy off-plan should consider is the Hanging Gardens project, due for completion in 2020.

Arguably even better is Marassi Al Bahrain, with its sandy beach, 5-star hotel resorts, cruise-liner dock, boulevard of restaurants and high-end retail, not to mention the largest mall in Bahrain. It will be a city in itself dominating Bahrain’s most north-easterly corner.  Beach front apartment properties are presently selling for as little as 58.8k and I believe the capital gain over the next 5 to 10 years may be substantially greater than any other area in Bahrain.

Conclusion
In conclusion, think supply and demand; think about ROI; think about appreciation; and remember: location, location, location. The best location is key. Even the smallest unit in the best location is better than the biggest unit in the worst location. Do your research, be informed, invest strategically, and choose wisely. Oh! And be sure to use a RERA registered and certified agent.

 

This article was first published in Trends Vol. 2