Can Bahrain, the Gulf’s most diversified economy, buck the global economic downturn and can the kingdom’s construction and real estate sectors ride the crisis?

As the world despairs over the impact of the global financial crisis, Bahrain is hoping that its prudent diversification efforts will help it weather the storm, although Moody’s Investor Service has changed the outlook of the kingdom’s sovereign ratings from stable to negative.
The frenzy of the past few years in the construction and real estate sectors has given way to a calmness that is characterised by a ‘wait-and-watch’ approach – and analysts give Bahrain a better chance of escaping the brunt of the crisis, as most of the projects were not speculative in character.
The year 2008 started out full of promise in the midst of a boom of the dimensions Bahrain has never seen before. Strong local demand, high liquidity and relaxed foreign ownership rules were propelling a bullish real estate market, which unleashed a series of privately-financed, high-end mega real estate projects.
An indication of the scale of these projects is that nearly a fifth of construction projects that were announced or had begun during the year for development in the GCC – worth around $100 billion – were reportedly earmarked for Bahrain.
Some of the larger developments include the BD1.2-billion ($3.2 billion) Diyar Al Muharraq, the biggest mixed-use residential urban development ever undertaken by the private sector in Bahrain; the BD378-million ($1 billion) Nurana, a flagship development project of Manara Developments; the BD1-billion Up Town project by Al Thara Investment House, a Qatari-Saudi company; the $800-million Nomas Tower; and Light of Bahrain’, an iconic 44-storey tower and Reflections of Bahrain, comprising a 240-room four-star business hotel, restaurants and a retail arcade, both by Ithmaar Development Company (IDC).
This apart, some of the mega ongoing developments continued to attract new investors. For instance, the $396-million Amwaj Waves was announced for Amwaj Islands, while Durrat Al Bahrain saw the launch of Durrat Marina (see Page 87) and the Marina Reef project as well as the Le Reef East and West Towers project were unveiled for Reef Islands.
It was a year that was punctuated by a series of strikes in the construction sector, by workers who downed tools and demanded for higher salaries amid concerns over the changing market dynamics including soaring costs.
It was a year when local construction companies lamented the ‘brain drain’ to the more lucrative markets of Dubai and Qatar.
A year on, the market seems to be on the verge of a trough, dampened by the global financial crisis. Oil prices have fallen dramatically from $148 per barrel to under $50.
However, despite the global financial scenario, Bahrain seems to be in a better position than many countries to face the challenges ahead and its modest rate of growth – which is based more on real demand – will help prevent any sharp declines, according to analysts.
Strong as the fundamentals are, Bahrain’s real estate market has started to feel the slowdown effects in the past couple of months. Speaking on the present state of the real estate market in Bahrain, Mike Williams, senior director at real estate adviser CB Richard Ellis in Bahrain said: “There’s little activity. Nobody is buying and nobody is selling and prices over the past months have been fairly static.”
Property buyers, according to him, are waiting for the local impact of the global crisis to become clear, while sellers are not desperate to sell, having largely not bought for speculation.
According to Mohammed Khalil Alsayed, chief executive of Ithmaar Bank’s Ithmaar Development Company, Bahrain’s real estate market will extend growth on healthy local demand “but at more moderate rates than those seen in the past two years”.
Speaking at the Bipex 2008 property fair in Manama late last year, he said that local demand will always be there, and prices in Bahrain “never heated up as in Dubai or other neighbouring countries”.
A different explanation of Bahrain’s immunity to the current times was offered by Shaikh Mohammed bin Isa Al Khalifa in his keynote address at a recent conference. He said: “The major real estate developments in Bahrain have been largely backed by Islamic banks, and have not suffered, for the most part, from the credit crunch. Also, we have not been as dependent as other nations on money from outside to finance our new developments [so] we have not suffered from withdrawals that have weakened others.”
Looking at the bright side, every crisis is an opportunity as well.
Prices of raw materials such as cement and steel have come down to realistic levels and the industry is no longer in the throes of a worsening scenario of shortages in resources.  The construction industry could do well to press ahead with projects and take advantage of the availability of raw materials and human resources and at prices that are more realistic, thus enabling them to complete projects within budget. In fact, with no major projects being cancelled, developers are making efforts to sustain the confidence in the market as projects that have broken ground and progressed beyond the foundation stage are going ahead, although some at a slower pace.
Industry experts have voiced confidence in the market, in view of the fact that the property growth in Bahrain has been fuelled by demand from a growing population and an influx of local and regional money, unlike Dubai, which attracted speculators from around the world.
While the luxury and middle segment of the market are overall in a supply-demand equilibrium, the lower end has long been neglected by developers. There’s a massive shortage in the low-income housing market, CEO of Bahrain-based Sico Investment Bank, Anthony Mallis said.
At the luxury end, buyers could do well to invest in Bahrain, say some experts. Robert Addison, country manager of Bahrain for global real estate broker DTZ, said: “The Bahrain residential market still represents an excellent opportunity for investors. With a number of high-end mega-projects currently in development, those looking to buy a luxury property can still do so in Bahrain at a fraction of the price currently being recorded in other markets such as the UAE.”
Commenting on the commercial market, Addison said: “By 2012 the market for commercial real estate in Bahrain will have transformed, with the kingdom’s current office space doubling by that point. Despite this, we predict that developers will phase development in a way which avoids a glut and we expect to see a rent increase in the short term.”
According to a DTZ report, retail space has seen a period of sustained and significant growth in past years with Bahrain now hosting more than 18 shopping malls on the island, with a total Gross Lettable Area (GLA) of around 280,000 sq m.
This GLA figure is set to more than double in the next five years, with over 370,000 sq m in the development pipeline, including the retail components on some of the island’s mega-projects, according to the report. Although the retail market is currently seeing significant success, this growth cannot be sustained with a consumer base of 800,000 residents alone.  The kingdom will instead look increasingly to the external demand represented by foreign visitors in its immediate catchment zone.
Developments in the retail sector include the Bahrain City Centre project, where a 1.5-million-sq-ft mall, opened in September last year, and construction work is in progress on a water-park, which will be the first indoor-outdoor facility of its kind in the kingdom, two luxury hotels and a 20-screen cinema complex. In addition, this year will also see the completion of Magic Planet, which will incorporate a 10-pin bowling alley, three additional cafes, five new restaurants and one specialty food outlet.
Another mega project in the wings is the Water Garden City, a brand new 23-million-sq-ft project that is set to be developed in a prime location on the coast of Bahrain. The developer Albilad Real Estate, which is currently fine-tuning the design aspects, is expected to make a major announcement of the project next month.
In terms of location, the magnets for the reality sector have been the Seef District and Juffair. During this year, the focus will also be on Bahrain Bay, with major developments such as Arcapita Bank headquarters and the Raffles City set to make major headway (see Pages 77-82).
In the public sector, the government is pressing ahead with the much-needed upgrade of the road infrastructure and has allocated about BD140 million for the expansion of the Bahrain International Airport. Work on the first phase of the project worth BD18.5 million, for the airport’s taxiway, is expected to start soon.
Set for an official opening shortly is the Khalifa Bin Salman Port and the Industrial Area in Hidd. The Ministry of Works is currently working on completing infrastructure works at the port. Also due for completion this year is the King Hamad General Hospital, about 78 per cent of which is already finished (see Page 63).

Roads & rail
Construction work on the $3-billion Qatar-Bahrain Friendship Bridge-Causeway was scheduled to start this month, although costs may be a factor in pushing ahead with the project. The 40-km Friendship bridge, which is slated to open for traffic by 2013, includes 22 km of viaducts and bridges over deep water, including two 400-m cable-stayed bridges over shipping channels and 18 km of embankments where the sea is shallow (see Page 83).
This key link is expected to go a long way in improving ties with Qatar and ease access to Qatar just as King Fahad Causeway has done for traffic to and from Saudi Arabia and Kuwait.
The King Fahad Causeway, which was opened in the late 1980s, is now set for an expansion. Last October, the King Fahad Causeway Authority announced that it was implementing a new short-term expansion project that will take around seven months to be completed. The project will add new truck lanes at the checkpoints. They will be increased from two to five lanes from Saudi Arabia to Bahrain and from two to four lanes in the opposite direction.
Meanwhile, Bahrain is planning an integrated public transport system, including a monorail train network project at an estimated cost of BD3 billion ($8 billion), under its strategic roads masterplan, aimed at easing traffic congestion until 2030.
As part of its ongoing efforts under the strategic masterplan, work is progressing on the new Sitra Causeway project, about half of which has been completed. The project, which costs more than BD100 million with land compensation, includes the redevelopment of Umm Al Hassam junction into a three-level interchange.
Work is also under way on the Isa Town interchange, which entails assembling Bahrain’s longest flyover covering a distance of nearly 1.8 km (see Page 63).
Bahrain’s Cabinet has already approved a plan to build a monorail network to ease traffic flow and overhaul public transportation. The entire project – measuring 103 km in total – is targeted for completion by 2030.
 
Projects
Diyar Al Muharraq: Launched as recently as last June, Diyar Al Muharraq, one of the biggest mixed-use residential urban developments ever undertaken by the private sector in Bahrain, is making considerable progress with Phase One of the land reclamation nearly complete. The project, with Kuwait Finance House (KFH) as the major investor, will provide a cohesive mix of residential and commercial properties with housing opportunities for over 100,000 people in around 30,000 dwellings. The development will be gradually released, with the first facilities ready for use in 2010 (see Page 68).
Water Garden City: Developer Albilad Real Estate is currently revising the designs of this development, which will include residential units, hotels, a beach park and marina, schools as well as commercial, leisure and retail facilities. It will be supported by a new causeway, which will facilitate access to Bahrain International Airport. Albilad Real Estate hopes to attract a 40,000-strong community, as well as businesses and tourists. Work on the project is targeted for completion in 2012.
Nurana: The project, located to the northwest of the Bahrain Fort and spread across 2 million sq m of reclaimed land, aims to create a vibrant and sustainable community inspired by the unique historical, geographical and cultural characteristics of its surrounding location. Manara Developments has been appointed by NS Holdings Company, the project’s owner, to be the development manager on the project. The company has further appointed HAJ to be the project manager for Nurana, and has been working with international experts Davenport Campbell on the master planning, in response to extensive market research studies. Approximately 60 per cent of the project will be earmarked for residential use covering all budgets, while the remaining 40 per cent will provide a mix of commercial, retail, hospitality and civic amenity land uses.
Light of Bahrain and Reflections of Bahrain: Unveiled by Ithmaar Development Company (IDC) last October, Light of Bahrain will be an iconic 44-storey building housing mixed-use freehold and serviced apartments while Reflections of Bahrain will include a 240-room four star business hotel, restaurants and a retail arcade. Both projects are, currently, in the concept stage with detailed architecture designs to commence shortly. DP Architects has been appointed as the concept design architect for both projects and the details of units will be firmed up after approval of the architectural designs.
Dilmunia: IDC awarded a $69-million contract to Boskalis Westminster Middle East last February to start reclamation work near the country’s northeast coast for Dilmunia, which is designed to be the Middle East’s largest healthcare, leisure and real estate project. The $1.6-billion project is aimed at revolutionising the healthcare industry in the region and turn Bahrain into a regional health tourism centre. Apart from specialist clinics, hospitals, spas and other wellness facilities, the project will also include hotels, residential areas and leisure and shopping centres, providing residents and visitors with state-of-the-art healthcare services in a resort-type environment, according to a company statement.
Up Town: Spread across an area of 103,573 sq m, the massive development will feature three huge towers – two of them with 75 storeys and 260 m in height, while the third tower is likely to touch 70 storeys. Among the other features of the project are a shopping mall, residential towers, and a five-star hotel.
Al Areen: Infrastructure work for the $1.3-billion Al Areen Resort and Spa development project is targeted for completion by the year-end. The project, which spreads over an area of 2 million sq m, aims to transform its desert location with a diversified range of residential, commercial, health and hospitality, and entertainment components. Major components of the development include the Banyan Tree Desert Spa and Resort, The Lost Paradise of Dilmun Water Park, Sarab Al Areen, Domina Prestige – Al Areen, Al Waha Resort, Downtown Al Areen, Al Areen Medical Centre, Oryx Hills, Sunset Hills, Al Areen Homes, and a number of residential villages, entertainment and recreational facilities.
Phase two of the development is under way with construction work for three projects – Domina Prestige Hotel, Oryx Hills and Sunset Hills. Work is also in progress on Downtown Al Areen, which is being completed in several phases.
Marina West: Claimed to be Bahrain’s first gated beachfront high-rise residential and lifestyle community, this BD680 million beachfront residential development is scheduled for completion in 2010.  A 32-month development and construction programme is well under way at the site which will offer 350,000 sq m of residential, retail and leisure space. Ten residential towers and one five-star hotel will accommodate luxury apartments, duplexes and penthouse suites. Alongside these will be a marina, a private beach and extensive high quality retail facilities. Work has recently started on the towers following completion of the substructure works.   A 66 kV/11 kV electrical substation was established at the development by mid-2008. 
Bahrain Financial Harbour: Work is under way on the $650 million Villamar@the Harbour, which forms a residential component of the $3-billion Bahrain Financial Harbour (BFH). Spread over 380,000 sq m of prime seafront property on the Manama corniche, the BFH was conceived in 2002 to create a technologically sophisticated financial environment. Major projects in the development include: Financial Centre, Commercial West, Commercial East, Harbour Row, Harbour House, Hotel, Residential South, Diamond Tower, Residential North and Dhow Harbour. The Financial Centre is fully functional and many renowned tenants have already commenced operations from its premises. It also boasts the Bahrain Stock Exchange which is expected to relocate its offices to the landmark development shortly. Harbour Mall, the BFH’s world class retail component commenced its operations in the last quarter of 2008.
Nomas Tower:  Projacs International has been appointed as project manager for the construction of the $800-million Nomas Towers project by Bahrain-based Nomas Enterprises. Being designed by Atkins, the mixed-use waterfront complex in Manama is spread over an area of 35,000 sq m in Juffair, and will have four 60-storey-plus slim, elliptical towers, an expansive waterfront. Its construction is planned to be carried out in a single phase and is due for completion by 2011, according to the developers.
Salam Resort Bahrain: Work is in progress at the $600-million Salam Resort Bahrain project, which is expected to be ready by the end of this year (see Page 91).
Zallaq Beach Resort: Work is under way on interiors of the Zallaq Resort, with the structure now nearing completion. The project, being built by Chinese contractor China State Construction and Engineering Corporation, is targeted for completion in October.

Conclusion
Given the current scenario, the construction sector could well use the imposed reprieve to take stock of what projects are actually viable in the present market. Undoubtedly, companies will have to redouble efforts over this year in the face of stiffer competition and the slower realisation of projects. Understandably, cash-flows will come under pressure and property developers may delay the launch of new projects. However on the bright side, the construction sector will not be forced to cut corners because of the breakneck pace of projects and will not have to contend with shortages and soaring costs of raw materials.