Bahrain’s mortgage market weathers recession while other industries struggle

Bahrain’s mortgage market has achieved significant growth despite a challenging market and is now worth $1.4 billion dollars, making Bahrain one of the strongest countries in terms of realty in the GCC (Gulf Cooperation Council). There are a number of reasons for this.

"The completion of landmark projects like Amwaj lands, Durrat Al-Bahrain and many properties in Juffair has helped to keep the market at sustainable growth levels," said R. Lakshmanan, chief executive officer of Sakana Holistic Housing Solution.  

Amwaj and Durrant Al-Bahrain are two massive real estate projects involving the construction of islands off the coast of Bahrain using land reclaimed from the sea, they each offer prestigious residential areas as well as marina, luxury hotels, golf courses and shopping malls.

Many of the homes on the islands offer private marina facilities and secluded beaches.

Lakshmanan, speaking to Bahrain news providers at the handover ceremony for the Nasmah Freehold Tower, which is already sold out, said that although the market internationally was “soft”, there was still strong demand for new houses in Bahrain, which was propping up the industry.

Bahrain has not been completely unaffected by the global slump though, house prices in Bahrain have declined by around 25%, and land prices have decreased 15%, over all, however, it is a stronger performance than other GCC countries, such as the UAE, where the property market has taken a heavy knock.

Despite this, there have been warning signs that while some industries in Bahrain tread-water rather well, others are not.

NCB Capital chief economist Jarmo Kotilaine said in the GCC Monthly Economic Bulletin recently that "Although the GCC economies exhibited remarkable resilience during the economic turmoil, they remain exposed to potential sources of renewed macroeconomic volatility in the medium term."

This is because countries such as Bahrain rely heavily on imports, especially for items such as food, and underperformance of the currency would make such imports increasingly expensive.

In addition, while the mortgage market manages the downturn, the banking industry has been badly affected by the financial crisis.

Gulf Finance House, a Bahrain-based investment bank, was recently forced to sell its share in Khaleej Commercial Bank when its credit rating was slashed, and Ithmaar, another Bahrain-based bank, was hard-pressed to find ways to raise capital after heavy losses of $235 million in 2009.

The bank said in March that it planned to raise $400 million. Up to $200 million would be raised by selling equity to existing shareholders and the sale of a mandatory convertible Islamic bond would account for the remainder.

In addition, the unstable price of oil is an external pressure that Bahrain is vulnerable to, another sudden drop in the oil price may trigger another downturn in the Gulf, which would eat away at already vulnerable markets.

On the whole, however, Bahrain is in a relatively stable and sustainable position, even if a second downturn were to occur, as the country is an example of fiscal health among the GCC states.