With a land area of just 716 sq km, the kingdom of Bahrain is but a minnow in comparison to Saudi Arabia – its nearest neighbour and a country more than 3000 times its size. As they always say, however, size isn’t everything. A lack of space has not only made Bahrain arguably the most mature real estate market in the Gulf, but it has inspired developers to come up with offshore projects that have been designed to tempt investors with the height in waterfront luxury living.
To give an indication of the pace at which Bahrain is building, research conducted by Kuwait-based Global Investment House shows that the value of traded land permits grew by 33.4% in 2003, and is expected to increase a further 13% this year to a total value of $985m. Many of the new projects involve dredging, and last year the government issued 53 construction permits for land reclamation, up from just two in 2001.
Having been the first Gulf country to discover and subsequently exploit its oil deposits back in the 1930s, Bahrain was also among the first to see a need to diversify its economy away from a reliance on natural resources. Unable to sell itself as a source of mass labour and as a site for manufacturing facilities, in the 1970s the kingdom set about a transformation into the Gulf’s offshore financial services hub. Today the Bahrain Monetary Agency, the central bank, licences over 360 financial institutions. For the developers this government focus on skilled service industries provides ample opportunity to attract a market for upscale residential and commercial properties.
A 2001 royal decree, then ratified in 2003, opened up the real estate market to foreign investors. Non-Bahrainis can now own residential and commercial buildings in five districts of the capital city Manama – Ahmed Al Fateh, Hoora, Bu Ghazal, and northern Manama including the Diplomatic Area.
However with the stipulation that these buildings must be 10 storeys or more, the rules are generally read as having been designed to discourage all but the most committed corporate investors and wealthy individuals. The exception to the rule is the busy Seef district, where the ownership of buildings of just three storeys is permitted. So popular has this district become that land prices have risen by a staggering 400% in just three years.
Under the terms of Bahraini investment laws, foreign companies may also apply to the Industrial Areas Directorate of the Ministry of Commerce and Industry for the right to lease government land. If the investor’s plans are deemed to be beneficial to the local economy in one of six broad categories – industry, commerce, tourism, financial services, healthcare and education – then the directorate has the discretion to authorise leases of a maximum 50-year duration. According to the Bahrain Economic Development Board, the average cost of a hangar-style industrial building is about $330 per sq metre a year.
Permitted to buy
For would-be residential real estate owners, however, the 2001 decree expressly permits foreigners to buy properties in three residential and tourism developments – Amwaj Islands (in Muharraq near the international airport), Durrat Al Bahrain (at the southern end of the main island of Bahrain), and Dannat Hawar (on the Hawar islands south of the main island). In general terms, estate agents read the rules as allowing foreigners to own property on any reclaimed land development.
The furthest advanced of these projects is the Amwaj Islands cluster, a $1bn string of artificial islands that its promoters, Ossis Property Developers, hope will become the Middle East’s new Riviera. Luxury villas, five-star hotels, apartment blocks, sports centres and commercial complexes with capacity for 20,000 residents will eventually dot these islands, and completion of the main land body is scheduled for 2005. One-bedroom apartments at the Mina Towers have been priced at $70,000 and upwards, while a two-storey townhouse in the Mirage Beachfront development should start at about $120,000.
Several zones developed by different investment consortia will give distinct identities to different parts of the Amwaj Islands. In the south-east, for example, a joint venture comprising the local Kanoo Group, Shamil Bank and Al Saraya Properties is building the $150m Al Marsa floating city. Styled on a Venetian theme, the Al Marsa city will comprise 215 waterfront villas and chalets that are ‘floating’ in that they are linked by a series of canals controlled by lock gates. This means that buyers of the larger five bedroom villas with gardens and swimming pools will be able to travel the area by boat and tie up at their own private moorings.
Further south, near the southern tip of the main island, Durrat Al Bahrain has taken some time to get going after initial investors dragged their heels on the project for a number of years. With an injection of new will and capital from Kuwait Finance House last year, however, the UK’s WS Atkins was engaged to revamp the project, and dredging for the $1.2bn self-contained resort is expected to begin soon.
Due for completion in 2009, Durrat Al Bahrain will now comprise an arc of six atolls, each with 1.5km of beachfront. With the option of either a section of beach or a mooring, investors will have a choice of 172 villas per atoll, plus a further 3000 apartments spread across the development. The early indications are that features such as ladies-only beaches have been designed to make Durrat appeal to GCC nationals rather than the international market, but ownership is open to all nationalities.
Plans for the Dannat Hawar resort are the least advanced, although construction work has begun under the auspices of the Southern Area Development Company. Here investors will be able to build villas on private islands, each with a jetty, and a large central island will feature a resort hotel, restaurants, a marina and sports facilities.
The flagship commercial and residential development is the $1.3bn Bahrain Financial Harbour (BFH) – brainchild of Gulf Finance House, a local Islamic investment bank, and Bahrain’s answer to London’s Canary Wharf.
With the aim of providing a suitably grandiose infrastructure to cement Bahrain’s position as the leading offshore and Islamic financial centre in the Gulf, the BFH is being built on 380,000 sq metres of reclaimed land on the north-facing shore of Manama, adjacent to the capital’s Bab Al Bahrain commercial centre. Ten projects make up the harbour, including residential towers, a hotel and dhow harbour as well as a Financial Centre.
By the time it is completed in early 2007, the $250m Financial Centre will contain a Financial Mall, Harbour House and Dual Towers. As its name implies, the mall will be an open centre for financial services firms, including a clearing and settlement house, trading hall and the Bahrain Stock Exchange. It will be connected to the 53-storey Dual Towers, which will house offices and residential suites. Linked by a suspended bridge, the Harbour House is intended as a centre for media companies specialising in business and finance. All premises designed to be occupied by financial services firms will be supplied with high-speed networks and security protection such as smart card access and CCTV.
Some units will only be available for lease, while others will be available for freehold purchase under the strata-title mechanism. This means that titles are issued jointly for units and for common property, and a committee of unit owners will be formed to oversee the maintenance of the common areas. Pre-developed units vary in size from 5400 sq metres to 105,529 sq metres, and all tenants will be exempt from any corporate or personal taxes as per Bahraini law. When the last residential zone is finished in 2010, the harbour will have capacity for 8000 workers and 7000 residents. Individuals buying residential property in the BFH will also be granted Bahrain residency visas for the duration of their ownership.
How the BFH will affect the ethnic make-up of Bahrain remains to be seen, but at the moment 62% of the populace are Bahraini nationals with the remainder a mixture or Arab, Asian and Western expatriates. The numbers are easily skewed, however, by the volume of Saudis and expatriates based in the eastern provinces who choose to live and take holiday in the more liberal environment of Bahrain. Of the four million visitors to Bahrain annually, the majority cross the King Fahd Causeway from Saudi Arabia, and Bahrain should soon open up to wealthy Qataris when a new causeway to the emirate is built.
Neil D’Silva, managing director of Norwich International Consultants in Manama, calculates that a total inventory of 4000 residential units will be released in the next three years, and reports that owners of Amwaj Islands properties are already earning 20% premiums in the secondary market. While over 75% of interest in Bahrain property is currently coming from locals and expatriates already working in the kingdom, government investment in new road and air links totalling about $850m over the next decade will only serve to make Bahrain even more accessible to outside investors.