INVESTING IN BAHRAIN Property tax & market insight Autumn 2017 Investing in Bahrain – Property tax & market insight Contents 3 Introduction 4 Bahrain residential property market snapshot 5 Bahrain commercial property market snapshot 6 Considerations for investing in Bahrain Introduction Cluttons has partnered with Trowers & Hamlins to produce a guide to investing in the property market in Bahrain. This has been a cross team effort, working with Trowers & Hamlins in Bahrain to simplify the obligations for those investing in the Kingdom’s residential and commercial markets. The document also includes an update on the residential and office markets in Bahrain and aims to provide a quick and easily digestible resource for all investors and purchasers. Undoubtedly, as we enter the fourth year since the shock collapse in oil values, Bahrain is still working its way through a challenging period, with positive Government intervention programmes being rolled out across the Kingdom. The benefits of this intervention are being dampened somewhat by a slight widening in the country’s GDP-to-debt ratio, however there are some encouraging signs emerging. The Government is putting the pieces of its vision for Bahrain into place and we are already seeing this in many segments of the economy. For instance, with the aid of the GCC Support Fund, the non-oil sector has remained buoyant, growing by 3.7% last year, lifted by wide-ranging infrastructure and construction projects around Bahrain (Oxford Economics). In fact, in early August, the Economic Development Board (EDB) announced that some USD 80 billion worth of construction and infrastructure projects are currently underway or planned for Bahrain, which is expected to help underpin economic growth over the short to medium term. With this in mind, we wanted to delve further in to the investment obligations for Bahrain, given its emerging profile as not only a gateway to SaudiArabia, but also its rising prominence in the central Gulf region. 3 Investing in Bahrain – Property tax & market insight Investing in Bahrain – Property tax & market insight Bahrain residential market snapshot Bahrain commercial market snapshot Rents stable after H1 corrections Affordability key to success In Amwaj Islands, one of Bahrain’s most Retail still central to unlocking Separate to the development of retail This is in part linked to the sharp rent popular expat residential submarkets, development potential malls, the Gulf’s largest IKEA is on track corrections that have been recorded After rents retreated across the board While requirement levels are while rents have ebbed by roughly BD to open next year at a cost of BD 47 since 2010; shell and core space is at the start of the year, we appear to undoubtedly weaker than this time last 50 per month (for apartments) and The desirability for developers to select million and is expected to create up to down by roughly 40-70%, while rents for be entering a period of stability, with year, our experience in the market has BD 100 per month (for villas) over the existing communities for new schemes 600 new jobs. fitted space are down by a third to half average rents across the Kingdom shown that established communities last 12 months, it retains its appeal. has also been fuelled by the strong over the same period. firming during Q3. Rents in general have remain the most attractive areas for The well-established community penetration of retail developments Retail remains a significant area of weakened by an average of 16.2% when tenants. In particular, those with well- infrastructure, retail provisions, access in many of Bahrain’s established growth in the Kingdom’s property sector While overall demand remains weak, compared to this time last year, and are managed facilities and amenities are to Bahrain International Airport and the residential areas. and the renewed confidence amongst start-up businesses are active in the down by roughly 8% since the start of succeeding in retaining high occupancy rapidly emerging developments on Diyar retail occupiers and retail developers market, many of which have been We have noted an upturn in the number 2017. levels, while rents are remaining Al Muharraq, all continue to contribute is reflected in the fact that retail rents supported by the Tamkeen initiative. of community retail developments in relatively stable, when compared to the to the relatively stable demand we across all locations we monitor have Space requirements by this subset of In general, villas have outperformed locations such as Juffair, while larger Kingdom as a whole. are recording here. Furthermore, with remained stable over the last six the office market often hover at around apartments, with rents dipping by 11% shopping malls such as the BD 45 the rent corrections that have already months. 100 sqm, with budgets of between BD 4 over the last 12 months. In fact, with Community living in high demand million The Avenues is progressing to taken place, we view the community psm to BD 6 psm. the exception of four-bedroom villas in schedule and will be a game changer Subdued demand for offices as exceptionally good value for money, Adliya (BD 1,200 per month) and on Elsewhere, at Cebarco Tower and for the Kingdom’s retail scene with The only noteworthy activity amongst which is likely to support a turnaround Amwaj Islands (BD 1,300 per month), Segaya Views in Manama, our its outdoor waterfront dining concept. Elsewhere in Bahrain’s commercial international occupiers has been in rental value growth sooner than other where average rents dipped by BD 100 residential team has registered Including The Avenues, we expect some market, demand for office space Amazon’s decision to make Bahrain locations in Bahrain. per month, rates have held stable across exceptionally strong demand across the 500,000 sqm of new retail space to remains lacklustre and static, with a regional hub for its cloud computing 130 units in both developments. Rents a very limited number of enquiries. most expat-dominated markets during Developers are conscious of this ever be delivered across Bahrain this year, services, which will see the creation of at Cebarco Tower stand between BD Encouragingly, rents for both fitted and Q3. On the apartment front, rental rates strengthening appetite for community dipping to approximately 220,000 sqm in three data centres in the Kingdom by 650 and BD 1,500 per month, while shell and core space have remained in Juffair have experienced some of the living in Bahrain and we are starting to 2018 and in excess of a further 140,000 2019. rents at Segaya Views are at BD 650 per stable since the start of 2017. sharpest corrections. see a handful of such schemes trickle on sqm in 2019. month. With average monthly residential to the market. Eagle Hills, for instance, Indeed, the performance of rents in rents across Bahrain standing at close recently launched Marassi Boulevard in general across Bahrain has been further to BD 650 for apartments, prospective the Marassi Al Bahrain area of Diyar Al compounded by weaker than normal tenants view the facilities and amenities Muharraq. levels of demand as slower economic offered at these two schemes as good growth takes a toll on the rate of job value for money. creation and, therefore, overall demand for rented accommodation. Average residential rents during Q3 2017 across key submarkets Performance of retail rents across Bahrain’s key submarkets 1,200 14 13 1,000 12 11 10 800 9 8 600 7 BD / month BD psm 6 400 5 4 200 3 2 1 0 Juffair Amwaj Islands Al Seef Reef Island Saar Adliya 0 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Apartments Villas Al Seef Amwaj Islands Isa Town Riffa Source: Cluttons Source: Cluttons 4 5 Investing in Bahrain – Property tax & market insight Investing in Bahrain – Property tax & market insight Considerations for investing in Bahrain Introduction While Bahraini and GCC nationals are In relation to leasehold property At present there is no tax levied on not restricted with regard to ownership transactions, Law 27 of 2014 (the the sale of residential or commercial Ownership of private property is of residential property, post-2006 foreign Leasing Law) states that all leases must property in the Kingdom of Bahrain. enshrined in the Constitution of the nationals are only permitted to own be registered within one month of the However, the GCC countries including Kingdom of Bahrain. Article 9 of the property and land in prescribed ‘foreign date of concluding the lease agreement Bahrain will be introducing VAT pursuant Constitution, in particular, reiterates the ownership zones’. with a designated local Registration to a GCC VAT Treaty. The date for the right to manage and retain control of Office. introduction of VAT in Bahrain is still not property within the limits of the law. These ‘zones’ include popular expat known but it is likely to be mid-2018 to locations such as the entire areas of Under the Leasing Law, the Landlord early 2019. The VAT standard rate will In the Kingdom of Bahrain, the Survey Al Seef and Juffair as well as a broad bears the responsibility for registration; be set at 5% across the GCC. and Land Registration Bureau (SLRB) range of master planned developments however in case of refusal, the Tenant manage the registration of real estate across the island such as Bahrain Bay, can register the lease agreement and The VAT applicable to property by both Bahrainis and foreign nationals. Riffa Views, Reef Island and Amwaj. have the cost of the registration fee transactions in Bahrain will not be known The Ministry of Municipalities and deducted from his/her rent.