Bahrain: Subsidies removal to impact real estate
Industrial sector set to benefit from removal of fuel subsidies in the short term in the Kingdom
Bahrain government's plans to remove fuel and utility subsidies are likely to have a long term impact on industrial and residential property markets, according to Cluttons.
"For a country as resilient on hydrocarbon income as Bahrain, the continuing slide in crude prices is driving the need for additional income streams," said Harry Goodson-Wickes, head of Cluttons Bahrain and Saudi Arabia.
He added "With oil prices hovering around $40-per-barrel, the timing for a removal of the fuel subsidies seems appropriate as it would most likely minimise the impact felt by households.
"And with the government estimating a 60% to 70% decline in oil revenues so far this year, there is a clear sense of urgency to diversify revenues."
In the residential market, the removal of fuel and utility subsidies will of course increase costs for households and in turn threaten to reduce Bahrain’s competitiveness as a destination for expatriate workers. In the long term, this may lead to a decline in rental yields and capital values in the Kingdom.”
Faisal Durrani, Cluttons’ head of research added, “We have already seen the successful implementation of fuel subsidies in the UAE, where energy subsidies formed a sizeable proportion of GDP. In fact, before fuel subsidies were ended on August 1, the IMF put this figure at 7% of GDP, or $106 billion, which also included utility subsidies. Both Dubai and Abu Dhabi have led the charge in the region to remove utility subsidies for expats, while fuel subsidies were dropped for the entire population and are now reviewed on a monthly basis. It's only a matter of time before other Gulf states follow suit and drop fuel and energy subsidies as they try to rebalance their economies in this era of cheap oil.
Goodson-Wickes concluded: “Any move by the government which reduces overhead costs for the industrial sector will boost manufacturing activity and the appeal of Bahrain amongst the region’s industrial occupiers. The advantage Bahrain offers is a strong platform, with established industrial estates and easy access into Saudi Arabia, putting it at an advantage over some other regional locations.
“The level of adjustments made to utility subsidies will go a long way towards telling if the changes help Bahrain to remain as an attractive destination for expatriates to live and work in.”