Housing Shortage To Remain Challenging Issue

BMI View: Bahrain's government has put forward several initiatives in a bid to address the country's long-running housing shortage, a perennial source of political and social tensions. While these schemes benefit from GCC funding and the involvement of the private sector, we note that high land prices and the current risk-adverse investment climate will continue to undermine housing construction activity over the coming years.

Since the start of 2013, Bahrain's government has advanced several schemes in an attempt to address the country's long-running housing shortage, a perennial source of political and social tensions. In May, Housing Minister Basem Al Hamer announced plans to spend US$7.9bn on government housing units by 2017. Public-private partnership (PPP) schemes are particularly in favour; in February 2012, the government signed a landmark US$550mn contract with local developer Naseej for the construction of 4,000 homes in the Northern City, Al Buhair, and Al Lawzi. Ithmaar Bank provided US$450mn in financing for the project in October 2013, and the first phase of units is now expected to be delivered by June 2016. The government also launched a pilot social housing finance programme on November 3 for around 1,200 eligible applicants, designed to diversify options for nationals.

At the root of these initiatives is a waiting list for government housing officially estimated at 53,000 households, out of a total population of 1.2mn (including 584,000 native Bahrainis). While poorer nationals across the Gulf monarchies have traditionally relied on the government to provide subsidised housing, approximately 45% of outstanding requests in Bahrain were lodged in 1993 - when access to public housing was first introduced. Moreover, the number of new applications now increases by 8,000 every year, according to Bahrain's Housing Projects, Construction and Maintenance Directorate, faster than construction can proceed. In a Gallup survey carried out in October 2010, 41% of nationals and Arab expatriates reported they had lacked enough money to pay for adequate shelter over the past 12 months, up from 24% in March 2009 and by far the largest proportion in the MENA region. Only 33% called themselves satisfied with the availability of housing.

Struggling To Accommodate A Fast-Rising Population
Bahrain - Total Population, mn

BMI View: Bahrain's government has put forward several initiatives in a bid to address the country's long-running housing shortage, a perennial source of political and social tensions. While these schemes benefit from GCC funding and the involvement of the private sector, we note that high land prices and the current risk-adverse investment climate will continue to undermine housing construction activity over the coming years.

Since the start of 2013, Bahrain's government has advanced several schemes in an attempt to address the country's long-running housing shortage, a perennial source of political and social tensions. In May, Housing Minister Basem Al Hamer announced plans to spend US$7.9bn on government housing units by 2017. Public-private partnership (PPP) schemes are particularly in favour; in February 2012, the government signed a landmark US$550mn contract with local developer Naseej for the construction of 4,000 homes in the Northern City, Al Buhair, and Al Lawzi. Ithmaar Bank provided US$450mn in financing for the project in October 2013, and the first phase of units is now expected to be delivered by June 2016. The government also launched a pilot social housing finance programme on November 3 for around 1,200 eligible applicants, designed to diversify options for nationals.

At the root of these initiatives is a waiting list for government housing officially estimated at 53,000 households, out of a total population of 1.2mn (including 584,000 native Bahrainis). While poorer nationals across the Gulf monarchies have traditionally relied on the government to provide subsidised housing, approximately 45% of outstanding requests in Bahrain were lodged in 1993 - when access to public housing was first introduced. Moreover, the number of new applications now increases by 8,000 every year, according to Bahrain's Housing Projects, Construction and Maintenance Directorate, faster than construction can proceed. In a Gallup survey carried out in October 2010, 41% of nationals and Arab expatriates reported they had lacked enough money to pay for adequate shelter over the past 12 months, up from 24% in March 2009 and by far the largest proportion in the MENA region. Only 33% called themselves satisfied with the availability of housing.

Struggling To Accommodate A Fast-Rising Population
Bahrain - Total Population, mn

To be sure, tight housing stocks and high demand are placing a heavy burden on the residential markets of nearly all countries in the Gulf Cooperation Council (GCC), with tangible improvements unlikely over the near term (see 'Affordable Housing On The Forefront', January 4). Moreover, we expect tight supply to drive up rental costs in most of the region throughout 2014, in turn fuelling consumer price inflation. However, overcrowding in Bahrain is particularly acute due to the combination of a fast-rising population, acute land constraints, and prevalent land price speculation. The country's population grew by 82.6% between 2001 and 2011 on the back of a large influx of foreign workers, far outpacing housing construction growth. Combined with a land area of only 760 square kilometres, the island has the third-highest population density in the world. In addition, approximately 92% of the population is concentrated in the northern half of the island, which accounts for only 43% of the land mass (see map below).

A Lot Of Empty Space
Bahrain - Population By Area, % (2011)

High Land Prices Hindering Housing Construction

The government's housing construction plans benefit from the involvement of the private sector as well as GCC financing stemming from a US$10bn development fund set up in 2011, two factors we regard as much-needed given Bahrain's poor fiscal outlook (see 'Weak Fiscal Outlook And High Uncertainty', August 7). Indeed, our Infrastructure research team views the use of the PPP model for Bahrain's housing sector as encouraging, as it demonstrates the government's willingness to use a range of solutions to narrow the accommodation deficit. Moreover, through government involvement and support, such a model can stimulate greater confidence in investors than a purely commercial project would in the current risk-adverse climate (see 'Social Housing PPP Offers Encouragement For Wary Investors, January 5 2012).

However, the high cost of land is likely to remain a challenge for future housing construction growth, putting significant pressure on development returns for the private sector. Indeed, a January 2013 report from real estate services firm CBRE states that "It remains difficult to address the needs of the 'affordable' market for a number of reasons. Site assembly and infrastructure are often complex, [and] land prices remain completely out of line with commercial realities". We agree with this view, and note that low land reclamation and appropriation procedures are an additional issue to which public-private partnership procurement models are not immune.

Pressure On The Government Will Remain Elevated

Whether improvements in the housing supply can be sustained over the coming years will be crucial to the prospects of the regime and the country's political stability, in our view. The long delays in the award of public housing, combined with suspicions of discrimination against the majority Shi'a population by the Sunni-dominated government, already constituted a major source of resentment prior to the 2011 political uprising. This was compounded by anger against the extensive span of royal properties, and claims of irregularities in sales of state land to the private sector and members of the ruling family.

Following several years of complaints from the opposition and calls for greater scrutiny of land sales, a parliamentary committee undertook a two-year investigation into the issue. Its report, delivered in April 2010, found that 65 square kilometres had been wrongly handed to prominent public figures and members of the royal court. However, the names of those royal family members who had allegedly benefitted from the land transfers - said to be worth up to US$40bn - were removed from the report before it was made public. At the time, we noted that "we see little chance that investigations into claims of irregularities in land sales to members of the royal family will begin to gather momentum" - a view that was soon confirmed, as the parliamentary manoeuvres were overshadowed by the beginnings of the ongoing political crisis (see ' Shi'a Candidates Triumph Despite Government Crackdown', November 15).

Barring a successful surge in affordable housing over the coming years, popular frustration against the government will continue to rise - particularly since the regime has done little to address the other causes of the uprising (see 'Stalemate To Persist Throughout 2014', November 5). This has sometimes found expression through anger against the kingdom's large expatriate community: in May 2012, the parliament blocked a proposal to allow expats to buy residential plots in Bahrain, on the grounds that it would lead to a significant spike in property prices. Ultimately, given the difficulties mentioned above and the negative effects of Bahrain's protracted political crisis on construction activity, we expect the housing shortage to remain unresolved over the foreseeable future.

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Sector: Country Risk
Geography: Bahrain
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