WHERE DO WE GO FROM HERE?

Omar Abdulaziz Ayoob
General Manager
Zayani Properties

“The property market gets sick, but it doesn’t die” is a saying I’ve heard a lot growing up, and for many from older generations, this saying seems to have proven itself true over the years. Bahrain’s property market seemed to be on the up for decades, albeit with the occasional bump along the way. With Bahrain’s economic expansion and a growing population, there has been significant opportunity for development. However, now more than ever. It’s time to reconsider assumptions about the property market and remember, as with all investments, past performance is not a guarantee of future returns. The perceived security of property has merit, but this should not be taken for granted. Likewise, practices of the past should not be assumed as suitable roadmaps for the future. With everything else in life, the only way to sustain development is to adapt and innovation but to do this effectively, an understanding of current realities is critical. We can start doing this by examining some of the trends seen in mid-2021. The Covid-19 crisis has had a major impact on the rental property market, which is heavily reliant on the expatriate population. Many expatriates lost their jobs or had salary reductions in 2020, leading them to downsize or leave Bahrain. This, coupled with the lack of overseas recruitment in 2021, created a shortfall in demand which cannot be easily remedied in the short to medium term. However, it could be argued that Covid-19 has only accelerated the inevitable in this regard.

As most people reading this will be aware, the rental property market was in over-supply prior to the Covid-19 crisis. With more and more construction around the country, it’s easy to come across a wide variety of seemingly near-empty buildings. Luxury accommodation skyscrapers are a common feature in areas around Seef or Bahrain Bay and the question that always comes to mind is “who is really going to live there?” There has been a very notable decline in the demand for “highend” properties in recent times with homebuyer and tenant preferences migrating to mid to low range property options where the accommodation is clean and affordable, enabling greater disposable income. While Bahrain still offers very attractive property options for foreign investors, people from our main foreign markets are now realizing the property investment opportunities in other countries. For example, in Egypt or Turkey where a spacious villa in an excellent area can be bought for the same price as a two bedroom flat in Juffair. Such options become even more appealing if the property is intended for personal use.

The number of locals interested in investing in property has also started to decline, as many find themselves pitted against landlords who are also trying to rent vacant apartments in the same building. Often such landlords offer a faster and better service to tenants and at a more competitive price. And while the government’s excellent financing programs have provided younger Bahraini families with the opportunity to purchase homes with flexible financing terms, something that has certainly helped the market, it seems that the local population’s preference remains houses rather than flats. Many young Bahrainis choose to remain living with their families until they are granted a public house, which compounds the challenges faced by property owners, with only a few large developers avoiding this dilemma.

Furthermore, the gradual rise of electricity prices, which has reached almost 866 percent, means that landlords face a difficult choice of taking the hit or shifting the hit to the tenant, which at times can seem like a lose-lose situation. For example, some apartments in Manama are renting for around BD200 but the monthly electricity bill can reach up to BD100 for the same apartment.

There are, of course, strategies that can be adopted to help soften the blow. Analysing the electricity consumption of the property and how it can be reduced can significantly minimize running cost (bearing in mind the key cost of air conditioning, which amounts to almost 50 percent of Bahrain’s overall electricity consumption). Shifting towards digital marketing is something most people have started, but It’s not yet fully proven. Building strong relationships with tenants can help maintain an existing client base but unfortunately, for many tenants the decision to stay or vacate a property is based on job security, which is out of their hands. Reducing rent and sale prices seems to be a good strategy to survive in current market conditions, and this is certainly better than having empty properties, but it should be done cautiously. Looking at Juffair for example; there is evidence of a pricing war with many landlords reducing rental prices by 25-30 percent, something that was unheard of in the past.

The retail sector is perhaps one of the biggest victims of the Covid-19 crisis and the evidence can be seen in malls all over Bahrain. Many retailers have started to reduce their number of stores in order to save rent, electricity and salaries, as well as economizing through centralized operations and ecommerce, which could be a positive shift in the post Covid-19 era.

These issues seem to cast doubt about the future of the property market, but maybe they also present opportunities to think more creatively and change the current trends by investing in smaller assets in key locations. This humbler approach could offer greater security and a quicker payback period, with a rise in demand for shared office spaces and affordable accommodation.

While full market recovery still seems far away, decision makers in this market must focus for now on survival rather than growth. Stabilizing their property portfolios and ensuring that their occupancy and revenue remain acceptable should be the priority, even if it means a reduction in profitability. New projects and investments, especially big residentials buildings and retail spaces, should be put on hold and seriously reconsidered. This is a time to think again about the market and plan a more sustainable path going forward.

This article was published as part of the sixth edition of Property Finder Bahrain’s Trends Report.