Tidying House: Bahrain's unfinished projects
Bahrain is keen to see stalled projects finished and private investment in new housing projects
News broke this past week that Bahrain’s government was to resolve issues which have brought a number of high-profile developments to a grinding halt.
In a round of sweeping changes designed to see projects through and draw in more international investment, the government also announced that it was to boost the rights of property investors. For those who’ve been waiting almost eight years for their new homes – five of them with no apparent site activity at all – the news must have come as a welcome relief.
The government’s Ministerial Committee for Construction and Infrastructure has referred a number of projects to a judicial committee – comprising three judges and two industry experts – to work on ironing out issues which have brought the projects to a standstill. Included in the referrals are Marina West, Amwaj Gateway, Riffa Views and Villamar – all projects which have seen little progress in construction over the past few years.
At the same time, the government has also tightened rules for developers who must now obtain a licence before submitting a planning application for a project, while new rules will soon require developers to register all off-plan property sales. Another move has made it mandatory to register tenancy agreements.
In tidying its house, the government’s intention is clear. It not only wants long dormant projects finished, but it also wants current investors’ expectations met, and to underscore the country’s reputation as a stable one in which to trust investments in bricks and mortar.
There’s another reason too: Bahrain has already highlighted its need for affordable housing, and it needs private investment and developers to do it. The country has a considerable budget plus funds from the $10bn GCC Gulf Development Programme to put towards the project, but it wants private companies to come to the party to help continue to fuel growth in the country’s construction sector. The programme is split into two initiatives: social housing, where the government buys properties outright; and affordable housing, where house prices are capped at $318,000 (BHD120,000) and owners are assisted by the Social Housing Finance Fund to meet mortgage payments.
Bahrain’s Ministry of Housing signed its first-ever housing public-private partnership (PPP) in 2012 with Naseej Properties in a $551.2m deal that will see 2,800 social and affordable homes built by 2017 in Al Madina Al Shamaliya and Al Luwzi. The programme includes 165 villas, townhouses and 202 apartments – while the remaining units will be distributed and subsidised under the MoH’s social housing programme.
News also broke this past week that the government had bought 3,100 homes in the Diyar Al Muharraq development at a cost of $732m (BHD276m). Diyar Al Muharraq will finance all construction works for the project, its associated primary and secondary infrastructures and community centres with support from Kuwait Finance House (Bahrain). Work on the site is due to begin in October this year with the target date for the handover of the residential units December 2018.
According to the UN Conference on Trade and Development’s World Investment Report 2014, foreign direct investment in Bahrain stood at nearly $990m in 2013. The country’s GDP stands at $32.89bn, and it ranks 53rd in the world (and fourth in the GCC) on the World Bank’s Ease of Doing Business ratings. The country tops the MENA region and is ranked 13th in the world in the Heritage Foundation’s 2014 Index of Economic Freedom. These are standards the government is keen to maintain.
With an additional $22bn set aside for infrastructure projects – including a number of sewage, power and road projects – there is still plenty of scope for developers and contractors who want to work in Bahrain.
Property consultants Cluttons says the government’s push to complete projects and press ahead with changes in regulations for developers was occurring at a time of increasing national stability and as property markets in Bahrain improve.
Harry Goodson-Wickes, Cluttons’ head of Bahrain and Saudi Arabia, said: “This is certainly another very positive step in the right direction. The government’s actions will no doubt translate into increased confidence levels and heightened investor interest, which will directly benefit headline projects such as Dragon City and The Courtyard.”
Marina West investors were told last week that they may be able to take possession of their properties by the end of 2016. The $750m project was launched in January 2007, with 11 towers – 10 residential and a five-star hotel – to be completed within a 32-month construction timeframe. But work at the 350,000m2 site has been at a standstill for more than five years.
There was a flicker of hope earlier this month when the Bahrain Real Estate Association tabled a proposal that suggested the project be split into 11 parts, one for each of the towers, with different banks spreading the financial burden.
If the proposal is given the green light, developers say they’d start by finishing off three residential towers – which represents a considerable number of the apartments bought off-plan – within the next few months. Developers would then turn their attention to the remaining residential towers, with an eye on total project completion by 2017 – ten years after its initial launch.
One investor contacted by Construction Week, who wished to remain anonymous, said that while the move seemed positive, there had been no mention of how work on the marina, swimming pools, tennis courts and the project’s linking infrastructure would be handled. He also said that priority should be given to those who had invested the earliest.
“I have no doubt the Judiciary Committee will sort it all out; for me the latest proposal just doesn’t add up,” he said.
Riffa Views faced different issues. While much of the $780m development, built around an 18-hole golf course designed by Colin Montgomery, has been completed – 212 villas remain unfinished.
The issue came to a head in June 2009 when 600 workers went on strike, claiming they hadn’t been paid for months. The contractor, Projects Construction Company (PCC), said it could not pay salaries because Riffa Views was late paying its bills. At the time Riffa Views said a shortage in building materials had meant the project had fallen behind, which then had an effect on the cycle of payments due.
Riffa Views faced more problems in 2012 when it defaulted on a National Bank of Bahrain loan, leaving 140 owners without title deeds to their homes because the land they were built on had been offered up as security. Four construction firms, which included PCC, Poullaides Construction Company, Cyprus Cybarco Tabet JV and Cyprus Building and Road Construction Company, claimed they were owed more than $50m.
The issue was resolved in February when NBB, Riffa Views and its creditors settled on a “Workout Plan” which would see the outstanding villas completed and the title deeds handed over. The precise details of the deal were not disclosed, but NBB said in a statement that money raised from the sale of the remaining villas will go towards the project’s various creditors.
Cluttons’ international research and business development manager, Faisal Durrani, added: “The government’s intentions are clear and the timing is near-perfect. Bahrain’s residential market is enjoying a period of exceptional stability, with rental value growth coming in at roughly 1-1.5% each quarter for the past 18 months or so.”
He added that Bahrain is a market that “is starting to find its feet again”.
Durrani concluded: “The stalled projects listed by the special committee, that have been earmarked to be pushed over the finish line, have been lying dormant, tantalisingly close to completion, for a number of years.
“Not only have these served as a constant reminder of the recent challenges faced by the real estate market across Bahrain, but they have been a source of financial distress for both domestic and international investors. The decisive announcement to now complete some of the stalled landmark schemes sends out a clear message to the international investment community.”