Construction focus: Bahrain

Bahrain's Villamar Towers project is forging ahead.

The immediate impact of the economic downturn on Bahrain’s construction sector has been less dramatic than elsewhere in the region and as such, it is somewhat difficult to measure.

Real estate firms report that consumer demand in the property market has been virtually silent since January, yet the Kingdom has been largely spared from the project cancellation trend that has been hanging over Dubai for the past six months.

Two casualties to the crisis in Bahrain include the US $1 billion (BHD377 million) Salam Beach Resort and the $300 million Bahrain Business Park, both of which are now on hold indefinitely.

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Yet the construction of high-end residential projects such as the $6 billion Durrat Al Bahrain, $650 million Villamar Towers, $2.5 billion Amwaj Islands and $700 million Marina West, is forging ahead as planned with units already on the market, or coming in the next 12 months.

When asked about the impact of the financial crisis, these developers tend to give similar answers; that unlike Dubai, Bahrain’s market is smaller, easier to manage and is based on real demand rather than speculative investment.

As such, the recession presents a challenge in terms of price restructuring, selling parcels rather than individual apartments and showing a bit of patience until the market recovers. “The money is there to buy, people want to buy, but sales have fallen off because they are just sitting tight to see if there’s a good bargain around the corner,” said Eric Tromans of Reemoon, the development managers behind Marina West.

Meanwhile, projects such as the $3.2 billion Diyar Al Muharraq, $1.3 billion Durrat Marina and $2.5 billion Bahrain Bay, which are in the early stages of construction, have all reaffirmed their commitments to long-term success, even if it does take a little longer than expected.

The CEO of Bahrain Bay Bob Vincent said all of the project’s 16 sub-developers are reassessing their plans and as such there will be delays to construction start dates. “There has been a paring back in some of the design criteria from some of the developers but in the end the projects will be built, they will be sustainable and the investors will reap an economic return,” he said.

“That’s a much better outcome than hanging onto an unrealistic expectation that will never be built.” But there still exists a lot of uncertainty when it comes to real end-user demand, which is apparent by the lack of new high-end residential projects being announced and the lack of financing for such projects from banks.

One project which may be suffering financing issues is the $2.5 billion Uptown Bahrain mixed use development. In February the project was awaiting imminent approval by the Central Bank of Bahrain for a $190 million fund to start the first phase of construction, but no news has been heard since.

Only two new major projects have been announced for Bahrain in the last six months. The first, Marssa Al Seef, was announced by Bahrain’s GBCORP bank in March and said to be a high-end residential project covering 2.4km², but no other details were revealed.

The second, announced in April by the government’s investment arm Mumtalakat, is a $1 billion motor sport themed development which will compliment the Bahrain International Circuit. Covering an area of 1km², a spokesman said construction could start as early as next year.

Both announcements came as a surprise as most developers are seen to be steering away from high-end residential projects in favour of industrial and affordable housing ones.

One such company, First Bahrain, is developing a $45 million warehousing project and eyeing potential low-income housing projects. General manager Amin Al Arrayed said most developers are beginning to have more realistic expectations on their return on investment.

“Before it was very easy to make quick money in real estate because you could buy land and it was appreciating 20% in just six months,” he said. “That created a false sense of what is a good return and now people are looking at more sensible projects, like our warehousing project. The returns aren’t in the 30% range but at least they’re sustainable.”

At present there are a number of major industrial projects underway which are catering to a strong demand from the logistics and industrial sectors, he said. New opportunities also exist for investors to engage in public private partnerships to help the government expedite its ambitious infrastructure program worth billions of dollars.

The Ministry of Works has already begun implementing several long term plans that will create a 180km public transport network, a comprehensive national roads network and world class sewage treatment facilities across the country by 2030.

Likewise, the Bahrain airport is set to commence construction of a new terminal in 2010 as part of a plan to increase the passenger capacity from seven million to 28 million a year by 2030. But despite there being several opportunities for work in the pipeline, Bahrain’s construction suppliers, consultants and contractors may not feel the full effects of the global economic downturn until their current contracts reach maturity.

Samir Nass, the vice chairman of one of Bahrain’s leading construction firms the Nass Group, said his contracting business has grown rapidly from 5000 workers to 12,000 workers since 2000. He said he is fearful that the growth spurt could prove burdensome as work dries up and new contracts are delayed. “At this stage, things are not clear and we are monitoring the situation,” he said.

“To minimise the damage, we already have on the drawing board, a restructuring process to become more efficient and we will make sure we don’t have the heavy burden of huge overheads with less return. “But I do think we’re only at the beginning of the downward business cycle and it could be a very grim picture ahead.”