Subdued real estate in Bahrain’s market over the coming twelve months

The Kingdom of Bahrain has adopted a strategy to diversify its economy and empower the private sector to play a bigger role in achieving the country’s Economic Vision 2030. The economic reforms adopted as part of the strategy has yielded positive results for the country. The overall GDP more than doubled between 2002 and 2017, with growth in the non-oil sector increased by an average of 7.5% annually.

Under the broader economic reforms, the government also launched the National Planning Development Strategy 2030 and established the Real Estate Regulatory Authority (RERA). This is now helping the nation to achieve an integrated approach towards urban development, increase transparency, promote investments while protecting the rights of consumers. Numerous labour market regulatory programme have also been introduced, key among which is the Flexible Worker System, which permits foreign workers to live in the Kingdom of Bahrain without a sponsor and work in several fields with multiple employers on a full or part-time basis. These factors have contributed towards creating a business-friendly environment in Bahrain and making it a preferred choice for expatriates to live and work.

However, government revenues especially in the non-oil sector have not kept pace with the overall diversification strategy. Successive budget deficits in recent years saw public debt reach 80% of GDP in 2018 compared to 13% in 2008. To address the issue, the government introduced the Fiscal Balance Programme (FBP) with an aim to achieve a balanced budget by 2022. The introduction of VAT and the USD 10 Bn in financing from neighbouring GCC countries are critical milestones in effect towards achieving the targets set out in the FBP.

The onset of COVID-19 pandemic, however, has now undone a lot of progress made under the FBP. The situation has been exacerbated by the dramatic drop in oil prices earlier this year. Consequently, in the first half of this year the budget deficit nearly doubled to BD 798 mn (USD 2.1 Bn), up 98% year-on-year (y-o-y). As a result of this, the timeline of achieving the targeted fiscal balance by 2022 is now likely to be pushed back.

According to recent data released by the Ministry of Finance and National Economy (MoF), during the first half of this year, overall government revenues fell to BD 910 million (USD 2.4 Bn), down 29% compared to the same period last year while oil revenues (in particular) were down by 35% for the same period. The non-oil sector was also affected, albeit less severely,  with revenues down 13% year-on-year (Y-o-Y).

Similar to the country’s economic landscape, the real estate sector has been under pressure for the last few years and this is now likely to continue for the foreseeable future given the challenging global economic landscape. Despite the diversification strategy, the intrinsic connection between Bahrain’s economy and the oil & gas industry means that the recent price fluctuations have created increased pressure on investments, employment and consequently on the real estate sector. The longer-term trends across the sector are still evolving, but, we anticipate a subdued real estate market over the coming twelve months.

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