INVESTING IN BAHRAIN

Property tax & market insight

Autumn 2017

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 ofce 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

benets 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 prole as not only a gateway to Saudi Arabia, but also its

rising prominence in the central Gulf region.

Contents

3 Introduction

4 Bahrain residential property market snapshot

5 Bahrain commercial property market snapshot

6 Considerations for investing in Bahrain

Investing in Bahrain – Property tax & market insight

Bahrain residential market snapshot

Rents stable after H1 corrections

After rents retreated across the board

at the start of the year, we appear to

be entering a period of stability, with

average rents across the Kingdom

rming during Q3. Rents in general have

weakened by an average of 16.2% when

compared to this time last year, and are

down by roughly 8% since the start of

2017.

In general, villas have outperformed

apartments, with rents dipping by 11%

over the last 12 months. In fact, with

the exception of four-bedroom villas in

Adliya (BD 1,200 per month) and on

Amwaj Islands (BD 1,300 per month),

where average rents dipped by BD 100

per month, rates have held stable across

most expat-dominated markets during

Q3. On the apartment front, rental rates

in Juffair have experienced some of the

sharpest corrections.

Indeed, the performance of rents in

general across Bahrain has been further

compounded by weaker than normal

levels of demand as slower economic

growth takes a toll on the rate of job

creation and, therefore, overall demand

for rented accommodation.

Affordability key to success

While requirement levels are

undoubtedly weaker than this time last

year, our experience in the market has

shown that established communities

remain the most attractive areas for

tenants. In particular, those with well-

managed facilities and amenities are

succeeding in retaining high occupancy

levels, while rents are remaining

relatively stable, when compared to the

Kingdom as a whole.

Community living in high demand

Elsewhere, at Cebarco Tower and

Segaya Views in Manama, our

residential team has registered

exceptionally strong demand across the

130 units in both developments. Rents

at Cebarco Tower stand between BD

650 and BD 1,500 per month, while

rents at Segaya Views are at BD 650 per

month. With average monthly residential

rents across Bahrain standing at close

to BD 650 for apartments, prospective

tenants view the facilities and amenities

offered at these two schemes as good

value for money.

In Amwaj Islands, one of Bahrain’s most

popular expat residential submarkets,

while rents have ebbed by roughly BD

50 per month (for apartments) and

BD 100 per month (for villas) over the

last 12 months, it retains its appeal.

The well-established community

infrastructure, retail provisions, access

to Bahrain International Airport and the

rapidly emerging developments on Diyar

Al Muharraq, all continue to contribute

to the relatively stable demand we

are recording here. Furthermore, with

the rent corrections that have already

taken place, we view the community

as exceptionally good value for money,

which is likely to support a turnaround

in rental value growth sooner than other

locations in Bahrain.

Developers are conscious of this ever

strengthening appetite for community

living in Bahrain and we are starting to

see a handful of such schemes trickle on

to the market. Eagle Hills, for instance,

recently launched Marassi Boulevard in

the Marassi Al Bahrain area of Diyar Al

Muharraq.

Bahrain commercial market snapshot

Retail still central to unlocking

development potential

The desirability for developers to select

existing communities for new schemes

has also been fuelled by the strong

penetration of retail developments

in many of Bahrain’s established

residential areas.

We have noted an upturn in the number

of community retail developments in

locations such as Juffair, while larger

shopping malls such as the BD 45

million The Avenues is progressing to

schedule and will be a game changer

for the Kingdom’s retail scene with

its outdoor waterfront dining concept.

Including The Avenues, we expect some

500,000 sqm of new retail space to

be delivered across Bahrain this year,

dipping to approximately 220,000 sqm in

2018 and in excess of a further 140,000

sqm in 2019.

Separate to the development of retail

malls, the Gulf’s largest IKEA is on track

to open next year at a cost of BD 47

million and is expected to create up to

600 new jobs.

Retail remains a signicant area of

growth in the Kingdom’s property sector

and the renewed condence amongst

retail occupiers and retail developers

is reected in the fact that retail rents

across all locations we monitor have

remained stable over the last six

months.

Subdued demand for ofces

Elsewhere in Bahrain’s commercial

market, demand for ofce space

remains lacklustre and static, with

a very limited number of enquiries.

Encouragingly, rents for both tted and

shell and core space have remained

stable since the start of 2017.

This is in part linked to the sharp rent

corrections that have been recorded

since 2010; shell and core space is

down by roughly 40-70%, while rents for

tted space are down by a third to half

over the same period.

While overall demand remains weak,

start-up businesses are active in the

market, many of which have been

supported by the Tamkeen initiative.

Space requirements by this subset of

the ofce market often hover at around

100 sqm, with budgets of between BD 4

psm to BD 6 psm.

The only noteworthy activity amongst

international occupiers has been

Amazon’s decision to make Bahrain

a regional hub for its cloud computing

services, which will see the creation of

three data centres in the Kingdom by

2019.

BD / month

Average residential rents during Q3 2017 across key submarkets

1,200

1,000

800

600

400

200

Juffair

Al SeefAmwaj Islands Reef Island Saar Adliya

Apartments Villas

Source: Cluttons

BD psm

Performance of retail rents across Bahrain’s key submarkets

Q1 2016 Q3 2016Q2 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

Al Seef Amwaj Islands Isa Town Riffa

Source: Cluttons

Investing in Bahrain – Property tax & market insight

Considerations for investing in Bahrain

Introduction

Ownership of private property is

enshrined in the Constitution of the

Kingdom of Bahrain. Article 9 of the

Constitution, in particular, reiterates the

right to manage and retain control of

property within the limits of the law.

In the Kingdom of Bahrain, the Survey

and Land Registration Bureau (SLRB)

manage the registration of real estate

by both Bahrainis and foreign nationals.

The Ministry of Municipalities and

Urban Planning and the Central Bank

of Bahrain govern and implement

the relevant real estate laws and

regulations.

Property Ownership

Commercial, industrial and tourism

companies and banking and nancial

institutions that are fully owned by non-

Bahrainis, and are licenced to carry on

business in Bahrain, are permitted to

own properties and bare land in Bahrain

for the purposes for which they are

licenced to carry out business.

This includes both freehold and

leasehold. However, this right is subject

to the terms and conditions set out in

the relevant laws of Bahrain; ownership

is only permitted in areas allocated by a

resolution of the Council of Ministers.

While Bahraini and GCC nationals are

not restricted with regard to ownership

of residential property, post-2006 foreign

nationals are only permitted to own

property and land in prescribed ‘foreign

ownership zones’.

These ‘zones’ include popular expat

locations such as the entire areas of

Al Seef and Juffair as well as a broad

range of master planned developments

across the island such as Bahrain Bay,

Riffa Views, Reef Island and Amwaj.

Registration and taxation

The process for registration of a property

freehold sale was condensed and

codied in 2013 to include a written

application for registration in SLRB’s

Property Register. Details to include in

the registration application include the

parties to the transaction, identication

of the property, a statement on any

property rights and any consideration

paid for the property.

The transferee is required to pay a

registration fee comprising 2% of

the property’s value. However, the

transferee is entitled to a 15% reduction

in this fee if the registration takes place

within 60 days of completion of the sale

agreement.

In relation to leasehold property

transactions, Law 27 of 2014 (the

Leasing Law) states that all leases must

be registered within one month of the

date of concluding the lease agreement

with a designated local Registration

Ofce.

Under the Leasing Law, the Landlord

bears the responsibility for registration;

however in case of refusal, the Tenant

can register the lease agreement and

have the cost of the registration fee

deducted from his/her rent.

Leases that are not registered are not

enforceable at the Rental Disputes

Committee, the committee set up under

the Leasing Law to deal with all landlord

and tenant disputes. A law passed in

2015 require the parties to register

the following details with the relevant

Registration Ofce:

¡ the duration of the lease;

¡ the agreed rent;

¡ the type of property; and

¡ the purpose for renting.

At present there is no tax levied on

the sale of residential or commercial

property in the Kingdom of Bahrain.

However, the GCC countries including

Bahrain will be introducing VAT pursuant

to a GCC VAT Treaty. The date for the

introduction of VAT in Bahrain is still not

known but it is likely to be mid-2018 to

early 2019. The VAT standard rate will

be set at 5% across the GCC.

The VAT applicable to property

transactions in Bahrain will not be known

until specic regulations are issued, but

generally speaking residential properties

are exempt from VAT while commercial

properties are likely to be taxable at the

standard rate.

Investing in Bahrain – Property tax & market insight

CLUTTONS

Harry Goodson-Wickes

Head of Bahrain

harry[email protected]

Richard Paul

Head of Professional Services &

Consultancy Middle East

[email protected]

cluttons.me

TROWERS & HAMLINS

Mairead Finlay-Noonan

Partner, Real Estate, Bahrain

m[email protected]

Abdul-Haq Mohammed

International Managing Partner and

Head of International Real Estate

[email protected]

www.trowers.com

For further details contact

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